<PAGE> 1
EXHIBIT (q)(2)
VAN KAMPEN SERIES FUND, INC.
ON BEHALF OF ITS SERIES
VAN KAMPEN HIGH YIELD AND TOTAL RETURN FUND
SUPPLEMENT DATED MAY 25, 2000 TO THE
PROSPECTUS DATED OCTOBER 28, 1999,
SUPERCEDING ALL PRIOR SUPPLEMENTS
The Prospectus is hereby supplemented as follows:
(1) The first paragraph in the section entitled "INVESTMENT ADVISORY
SERVICES -- INVESTMENT ADVISER -- ADVISORY AGREEMENT AND ADMINISTRATION
AGREEMENT" is hereby deleted and replaced in its entirety with the following:
The Fund retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement between the Adviser and the Fund (the "Advisory
Agreement"), the Fund pays the Adviser a monthly fee computed based upon an
annual rate applied to the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
------------------------ -----------
<S> <C>
First $500 million............................... 0.75 of 1.00%
Next $500 million................................ 0.70 of 1.00%
Over $1 billion.................................. 0.65 of 1.00%
</TABLE>
(2) The information on the inside back cover of the Prospectus under the
heading "BOARD OF DIRECTORS AND OFFICERS -- BOARD OF DIRECTORS" is hereby
amended by deleting Paul G. Yovovich, effective April 14, 2000, and by deleting
and replacing Richard M. DeMartini* and Don G. Powell* with Mitchell M. Merin*
and Richard F. Powers, III*, effective December 15, 1999.
(3) The information on the inside back cover of the Prospectus under the
heading "BOARD OF DIRECTORS AND OFFICERS -- OFFICERS" is hereby amended by
deleting all information pertaining to Curtis W. Morell* and Tanya M. Loden*,
effective January 31, 2000, Dennis J. McDonnell*, effective March 31, 2000,
Peter W. Hegel*, effective May 31, 2000, and by deleting and replacing Stephen
L. Boyd's title of Vice President with Executive Vice President and Chief
Investment Officer and Edward C. Wood, III*, Vice President, with John H.
Zimmermann, III*, Vice President, effective April 17, 2000.
MSHY SPT 525
456 556 656
<PAGE> 2
(4) The information on the inside back cover of the Prospectus under the
heading "FOR MORE INFORMATION -- INDEPENDENT ACCOUNTANTS" is hereby deleted and
replaced with the following:
DELOITTE & TOUCHE LLP
Two Prudential Plaza
180 N. Stetson Avenue
Chicago, Illinois 60601
RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE> 3
VAN KAMPEN
HIGH YIELD AND TOTAL
RETURN FUND
Van Kampen High Yield and Total Return Fund is a mutual fund with an investment
objective to seek to maximize total return by investing in a diversified
portfolio of high yield, high risk income securities that offer a yield above
that generally available on debt securities in the four highest rating
categories of the recognized rating services.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulator, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This prospectus is dated OCTOBER 28, 1999.
VAN KAMPEN
FUNDS
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary ........................................................ 3
Fees and Expenses of the Fund .............................................. 6
Investment Objective, Policies and Risks ................................... 7
Investment Advisory Services ............................................... 16
Purchase of Shares ......................................................... 17
Redemption of Shares ....................................................... 25
Distributions from the Fund ................................................ 26
Shareholder Services ....................................................... 27
Federal Income Taxation .................................................... 28
Financial Highlights ....................................................... 30
Appendix -- Description of Securities Ratings .............................. A-1
</TABLE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE> 5
RISK /RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to
maximize total return by investing in a diversified portfolio of high yield,
high risk income securities that offer a yield above that generally available on
debt securities in the four highest rating categories of the recognized rating
services.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to
achieve the Fund's investment objective by investing at least 80% of the Fund's
total assets in a portfolio of lower-grade income securities. Lower-grade
securities are commonly referred to as "junk bonds" (see sidebar for an
explanation of quality ratings). The Fund buys and sells securities seeking a
high level of current income and capital appreciation over the long-term. The
Fund invests in a broad range of income securities represented by various
companies and industries and traded on various markets. The Fund's investment
adviser uses equity and fixed income valuation techniques, together with
analyses of economic and industry trends, to determine the Fund's overall
structure, sector allocation and desired maturity. Portfolio securities are
typically sold when the Fund's investment adviser's assessments for the total
return of such securities materially change.
The Fund invests primarily in domestic corporate issuers but may invest up to
20% of its total assets in income securities of foreign issuers. The Fund may
purchase and sell securities on a when-issued or delayed delivery basis. The
Fund may purchase and sell certain derivatives (such as options, futures,
options on futures, currency-related transactions involving options, futures and
forward contracts and interest rate swaps or other interest rate-related
transactions) for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in lower-grade
securities, the Fund is subject to a higher level of credit risk than a fund
that buys only investment-grade securities. The credit quality of
"noninvestment-grade" securities is considered speculative by recognized rating
agencies with respect to the issuer's continuing ability to pay interest and
principal. Lower-grade securities may have less liquidity and a higher incidence
of default than higher-grade securities. The Fund may incur higher expenditures
to protect the Fund's interest in such securities. The credit risks and market
prices of lower-grade securities generally are more sensitive to negative issuer
developments, such as reduced revenues or increased expenditures, or adverse
economic conditions, such as a recession, than are higher-grade securities.
UNDERSTANDING
QUALITY RATINGS
Income securities ratings are based on the issuer's ability to pay interest and
repay the principal. Securities with ratings above the line are considered
"investment-grade," while those with ratings below the line are regarded as
"noninvestment-grade," or "junk bonds." A detailed explanation of these ratings
can be found in the appendix to this prospectus.
<TABLE>
<CAPTION>
S&P Moody's Meaning
--- ------- ---------------------
<S> <C> <C>
AAA Aaa Highest quality
AA Aa High quality
A A Above-average quality
BBB Baa Average quality
--- ------- ---------------------
BB Ba Below-average quality
B B Marginal quality
CCC Caa Poor quality
CC Ca Highly speculative
C C Lowest quality
D -- In default
</TABLE>
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of income securities tend to fall as
interest rates rise, and such declines tend to be greater among income
securities with longer maturities. The Fund has no policy limiting the
maturities of its investments. To the extent that the Fund
3
<PAGE> 6
invests in securities with longer maturities, the Fund will be subject to
greater market risk than a fund investing solely in shorter-term securities.
Lower-grade securities, especially those with longer maturities or those that do
not make regular interest payments, may be more volatile and may decline more in
response to negative issuer or general economic news than higher-grade
securities.
Market risk is often greater among certain types of income securities, such as
zero-coupon bonds or pay-in-kind securities. As interest rates change, these
securities often fluctuate more in price than traditional income securities and
may subject the Fund to greater market risk than a fund that does not own these
types of securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of income
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities most likely would be reinvested by the Fund in securities bearing the
new, lower interest rates, resulting in a possible decline in the Fund's income
and distributions to shareholders.
FOREIGN RISKS. Because the Fund may own securities of foreign issuers, it may
be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures,
currency-related transactions involving options, futures and forward contracts
and interest rate swaps or other interest rate-related transactions are examples
of derivatives. Derivative investments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
o Seek a high level of current income and capital appreciation
o Are willing to take on the substantially increased risks of lower-grade
securities in exchange for potentially higher total return
o Wish to add to their investment portfolio a fund that invests primarily in
lower-grade domestic corporate income securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
4
<PAGE> 7
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the two calendar years prior to the
date of this prospectus. Sales loads are not reflected in this chart. If these
sales loads had been included, the returns shown below would have been lower.
Remember that the past performance of the Fund is not indicative of its future
performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
<S> <C>
1997 13.80%
1998 4.11%
</TABLE>
The Fund's return for the nine-month period ended September 30, 1999 was 1.58%.
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the two-year period shown in the bar chart, the highest quarterly return
was 6.25% (for the quarter ended June 30, 1997) and the lowest quarterly return
was (4.34)% (for the quarter ended September 30, 1998.
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Credit Suisse First Boston
High Yield Index, a broad-based market index (an unmanaged index of high yield
corporate bonds) that the Fund's investment adviser believes is an appropriate
benchmark for the Fund. The Fund's performance figures include the maximum sales
charges paid by investors. The index performance figures do not include any
commissions or sales charges that would be paid by investors purchasing the
securities represented by the index. Average annual total returns are shown for
the periods ended December 31, 1998 (the most recently completed calendar year
prior to the date of this prospectus). Remember that the past performance of the
Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
FOR THE
PERIODS ENDED PAST SINCE
DECEMBER 31, 1998 1 YEAR INCEPTION
----------------- ------ ---------
<S> <C> <C>
Van Kampen High Yield
and Total Return Fund
-- Class A Shares (0.85)% 8.63%(1)
Credit Suisse First Boston
High Yield Index 0.58% 8.16%(2)
---- ----
Van Kampen High Yield
and Total Return Fund
-- Class B Shares (0.44)% 8.79%(1)
Credit Suisse First Boston
High Yield Index 0.58% 8.16%(2)
---- ----
Van Kampen High Yield
and Total Return Fund
-- Class C Shares 2.48% 9.78%(1)
Credit Suisse First Boston
High Yield Index 0.58% 8.16%(2)
---- ----
</TABLE>
Inception dates: (1) 5/1/96, (2) 4/30/96.
The current yield for the thirty-day period ended June 30, 1999 is 8.52% for
Class A Shares, 8.18% for Class B Shares and 8.18% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800)341-2911.
5
<PAGE> 8
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
-----------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price) 4.75%(1) None None
---- ---- ----
Maximum deferred sales charge
(load) (as a percentage of the
lesser of original purchase price
or redemption proceeds) None(2) 4.00%(3) 1.00%(4)
---- ---- ----
Maximum sales charge (load)
imposed on reinvested dividends None None None
---- ---- ----
Redemption fees None None None
---- ---- ----
Exchange fee None None None
---- ---- ----
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees(5) 0.75% 0.75% 0.75%
---- ---- ----
Distribution and/or Service
(12b-1) Fees(6) 0.25% 1.00%(7) 1.00%(7)
---- ---- ----
Other Expenses(5) 0.72% 0.73% 0.73%
---- ---- ----
Total Annual Fund Operating
Expenses(5) 1.72% 2.48% 2.48%
---- ---- ----
</TABLE>
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares --
Class A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at
the time of purchase, but a deferred sales charge of 1.00% may be imposed
on certain redemptions made within one year of the purchase. See "Purchase
of Shares -- Class A Shares."
(3) The maximum deferred sales charge is 4.00% in the first and second year
after purchase, declining thereafter as follows:
Year 1-4.00%
Year 2-4.00%
Year 3-3.00%
Year 4-2.50%
Year 5-1.50%
After-None
See "Purchase of Shares -- Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."
(5) The Fund's investment adviser is currently waiving or reimbursing a portion
of the Fund's Management Fees and Other Expenses such that the actual Total
Annual Fund Operating Expenses were 1.25% for Class A Shares, 2.00% for
Class B Shares and 2.00% for Class C Shares for the fiscal year ended
June 30, 1999. The fee waivers or expense reimbursements can be terminated
at any time.
(6) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual
distribution and service fee of up to 1.00% of the average daily net assets
attributable to such class of shares. See "Purchase of Shares."
(7) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares, which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares $ 642 $ 991 $1,364 $2,409
------ ------ ------ ------
Class B Shares $ 651 $1,073 $1,471 $2,629*
------ ------ ------ ------
Class C Shares $ 351 $ 773 $1,321 $2,816
------ ------ ------ ------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares $ 642 $ 991 $1,364 $2,409
------ ------ ------ ------
Class B Shares $ 251 $ 773 $1,321 $2,629*
------ ------ ------ ------
Class C Shares $ 251 $ 773 $1,321 $2,816
------ ------ ------ ------
</TABLE>
*Based on conversion to Class A Shares after eight years.
6
<PAGE> 9
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
The Fund's investment objective is to seek to maximize total return by investing
in a diversified portfolio of high yield, high risk income securities that offer
a yield above that generally available on debt securities in the four highest
rating categories of the recognized rating services. The Fund's investment
objective is a fundamental policy and may not be changed without the approval of
a majority of shareholders of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
There are risks inherent in all investments in securities; accordingly there can
be no assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 80% of the Fund's total
assets in a portfolio of lower-grade income securities, which includes
securities rated at the time of purchase BB or lower by Standard & Poor's
("S&P") or rated Ba or lower by Moody's Investors Service, Inc. ("Moody's") or
comparably rated short-term securities and unrated securities determined by the
Fund's investment adviser to be of comparable quality at the time of
purchase. Under normal market conditions, the Fund invests between 80% and 100%
of its total assets in these higher yielding, high risk securities (commonly
referred to as "junk bonds"). With respect to such investments, the Fund has not
established any limit on the percentage of its portfolio which may be invested
in securities in any one rating category. Securities rated BB or lower by S&P or
rated Ba or lower by Moody's or comparably rated short-term securities and
unrated securities of comparable quality involve special risks as compared to
investments in higher-grade securities. To mitigate these risks the Fund will
diversify its holdings by issuer, industry and credit quality, but investors
should carefully review the section below entitled "Risks of Investing in
Lower-Grade Securities."
The Fund buys and sells securities seeking a high level of current income and
capital appreciation over the long-term. The Fund invests in a broad range of
income securities represented by various companies and industries and traded on
various markets. The Fund's investment adviser uses equity and fixed income
valuation techniques, together with analyses of economic and industry trends, to
determine the Fund's overall structure, sector allocation and desired maturity.
The Fund's investment adviser emphasizes securities of companies that have
strong industry positions and favorable outlooks for cash flow and asset values.
The Fund's investment adviser conducts a credit analysis for each security
considered for investment to evaluate its attractiveness relative to the level
of risk it presents.
The higher yields, current income and the potential for capital appreciation
sought by the Fund are generally obtainable from securities in the lower-credit
quality range. Such securities tend to offer higher yields than higher-grade
securities with the same maturities because the historical conditions of the
issuers of such securities may not have been as strong as those of other
issuers. These securities may be issued in connection with corporate
restructurings such as leveraged buyouts, mergers, acquisitions, debt
recapitalization or similar events. These securities are often issued by
smaller, less creditworthy companies or companies with substantial debt and may
include financially troubled companies or companies in default or in
restructuring. Such securities often are subordinated to the prior claims of
banks and other senior lenders. Lower-grade securities are regarded by the
rating agencies as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The ratings of S&P
and Moody's represent their opinions of the quality of the debt securities they
undertake to rate, but not the market risk of such securities. It should be
emphasized however, that ratings are general and are not absolute standards of
quality.
The Fund's investment adviser seeks to minimize the risks involved in investing
in lower-grade securities through diversification, careful investment analysis
and attention to current developments and trends in the economy and financial
and credit markets. In purchasing and selling securities, the Fund's investment
adviser evaluates the issuers of such securities based on a number of factors,
including but not
7
<PAGE> 10
limited to the issuer's financial resources, its sensitivity to changing
economic conditions and trends, its revenues or earnings potential, its
operating history, its current borrowing requirements and debt maturities, the
quality of its management, regulatory matters and its potential for yields and
capital appreciation. The Fund's investment adviser may consider the ratings
from S&P and Moody's in evaluating securities but it does not rely primarily on
such ratings. The investment adviser continuously monitors the issuers of debt
securities held by the Fund.
The Fund may invest in income securities of any maturity and denominated in any
currency. The types of debt securities in which the Fund may invest, include,
but are not limited to, the following: fixed or variable rate bonds, notes,
bills or debentures; discount, zero coupon or payment-in-kind securities;
preferred stock; convertible securities; bank debt obligations; commercial
paper; equipment lease certificates; equipment trust certificates; conditional
sales contracts; and obligations issued or guaranteed by the U.S. government or
any foreign government with which the U.S. maintains relations or any of their
respective political subdivisions, agencies or instrumentalities. The Fund may
invest up to 10% of its total assets in equity securities other than preferred
stock (common stocks, warrants and rights, and limited partnership interests).
The Fund may not invest more than 5% of its total assets at time of acquisition
in equipment lease certificates, equipment trust certificates, conditional sales
contracts or limited partnership interests. The Fund may invest up to 20% of its
total assets in fixed income securities that are investment grade.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund may invest up to 20% of its total assets in securities of foreign
issuers, although the Fund may not invest more than 5% of its total assets in
foreign government issuers in any one country. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets of the Fund are
not fully invested or attractive investment opportunities are foregone.
A Fund's investments in securities of developing or emerging market countries
are subject to greater risks than a Fund's investments in securities of
developed countries since emerging market countries tend to have economic
structures that are less diverse and
8
<PAGE> 11
mature and political systems that are less stable than developed countries.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase or sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
Investors should carefully consider the risks of foreign investments before
investing in the Fund.
RISKS OF INVESTING IN
LOWER-GRADE SECURITIES
Securities which are in the lower-grade categories generally offer higher yields
than are offered by higher-grade securities of similar maturities, but they also
generally involve greater risks, such as greater credit risk, greater market
risk and volatility, greater liquidity concerns and potentially greater manager
risk. Investors should carefully consider the risks of owning shares of a
portfolio which invests in lower-grade securities before investing in the Fund.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade debt securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's securities relate.
Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on
9
<PAGE> 12
its portfolio holdings, and the Fund may be unable to obtain full recovery on
such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade 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. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Directors. During
periods of reduced market liquidity or in the absence of readily available
market quotations for lower-grade securities held in the Fund's portfolio, the
ability of the Fund's investment adviser to value the Fund's securities becomes
more difficult and the judgment of the Fund's investment adviser may play a
greater role in the valuation of the Fund's securities due to the reduced
availability of reliable objective data.
The Fund may invest in securities not producing immediate cash income, including
securities in default, zero-coupon securities or pay-in-kind securities, when
their effective yield 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, fluctuation 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
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these
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<PAGE> 13
concerns against the expected total returns from such instruments.
The Fund's investments may include securities with the lowest-grade assigned by
the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. The total value, at time of
purchase, of the sum of all such securities will not exceed 10% of the value of
the Fund's total assets. Securities of such companies are regarded by the rating
agencies as having extremely poor prospects of ever attaining any real
investment standing and are usually available at deep discounts from the face
values of the instruments. A security 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
capital appreciation. If the company defaults on its obligations or remains in
default, or if the plan of reorganization does not provide sufficient payments
for debtholders, the deep discount securities may stop generating income and
lose value or become worthless. The Fund's investment 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.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, the Fund's portfolio may consist of a higher portion
of unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by the Fund and may
also limit the ability of the Fund to sell such securities at their fair value
either to meet redemption requests or in response to changes in the economy or
the financial markets. Further, to the extent the Fund owns or may acquire
illiquid or restricted lower-grade securities, these securities may involve
special registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain lower-grade issuers may be
less extensive than other issuers. In its analysis, the Fund's investment
adviser may consider the credit ratings of recognized rating organizations in
evaluating securities although the investment adviser does not rely primarily on
these ratings. Ratings evaluate only the safety of principal and interest
payments, not the market value risk. In addition, ratings are general and not
absolute standards of quality, and credit ratings are subject to the risk that
the creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Additionally, since most
foreign debt securities are not rated, the Fund will invest in such securities
based on the Fund's investment adviser's analysis without any guidance from
published ratings. Because of the number of investment considerations involved
in investing in lower-grade securities and foreign debt securities, achievement
of the Fund's investment objectives may be more dependent upon the investment
adviser's credit analysis than is the case with investing in higher-grade
securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain lower-grade
securities, such 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 federal income tax law and may, therefore, have to
dispose of its portfolio securities to satisfy distribution requirements.
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<PAGE> 14
The table below sets forth the percentages of the Fund's assets invested during
the fiscal period ended June 30, 1999 in the various rating categories and in
unrated securities determined by the Fund's investment adviser to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all debt securities held by the Fund during the fiscal period
computed on a monthly basis.
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, 1999
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
(AS A PERCENTAGE OF (AS A PERCENTAGE OF
RATING CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
--------------- ------------------- ---------------------
<S> <C> <C>
AAA/Aaa 0.00% 0.00%
------ ------
AA/Aa 0.10% 0.00%
------ ------
A/A 0.69% 0.00%
------ ------
BBB/Baa 8.41% 0.00%
------ ------
BB/Ba 44.12% 0.00%
------ ------
B/B 37.83% 1.06%
------ ------
CCC/Caa 6.91% 0.88%
------ ------
CC/Ca 0.00% 0.00%
------ ------
C/C 0.00% 0.00%
------ ------
D 0.00% 0.00%
------ ------
Percentage of
Rated and Unrated
Securities 98.06% 1.94%
------ ------
</TABLE>
The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those listed above.
ADDITIONAL INFORMATION REGARDING
CERTAIN INCOME SECURITIES
DISCOUNT, ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES. The Fund may invest in
securities sold at a substantial discount from their value at maturity, such as
zero-coupon and payment-in-kind securities, when the Fund's investment adviser
believes the effective yield on such securities over comparable instruments
paying current cash income makes these investments attractive. Zero-coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Because such securities
do not entitle the holder to any periodic payments of interest prior to
maturity, this prevents the reinvestment of such interest payments if prevailing
interest rates rise. On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, "zero-coupon" securities eliminate
the reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are securities that pay interest
through the issuance of additional securities. 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 than are securities that pay interest periodically in cash. In
addition, the amount of non-cash interest income earned on such instruments is
included, for federal income tax purposes, in the Fund's calculation of income
that is required to be distributed to shareholders for the Fund to maintain its
desired federal income tax status (even though such non-cash paying securities
do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.
BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are typically from a
debtor nation restructuring outstanding external commercial bank indebtedness.
Brady Bonds generally are based on issuers with a history of defaults with
respect to commercial bank loans and therefore are often viewed as speculative.
A more complete description of Brady Bonds is contained in the Fund's Statement
of Additional Information.
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<PAGE> 15
SOVEREIGN DEBT. In addition to Brady Bonds, the Fund may invest in sovereign or
sovereign-related debt obligations, including obligations of supranational
entities. Sovereign debt differs from debt obligations of private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party and the legal recourse in enforcing a sovereign debt is often
limited. At certain times, certain countries (particularly emerging market
countries) have declared a moratoria on the payment of principal and interest on
external debt. Such investments may include participations and assignments of
sovereign bank debt, restructured external debt that has not undergone a
Brady-style debt exchange, and internal government debt.
PRIVATE PLACEMENTS. The Fund may invest in income securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded in the over-the-counter
secondary market. A significant portion of the high yield, high risk bond market
is privately placed securities or restricted securities sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended. In many cases, privately placed securities will be subject to
contractual or legal restrictions on transfer. As a result of the absence of a
public trading market, privately placed securities may in turn be less liquid
and more difficult to value than publicly traded securities. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. The Fund monitors the liquidity of such
securities and securities not considered liquid are subject to the Fund's
limitation on illiquid securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale except that it may invest up to 20% of its
total assets in 144A securities. Certain of the Fund's direct investments,
particularly in emerging market countries, may include investments in smaller,
less seasoned companies, which may involve greater risks. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group.
OTHER INVESTMENT PRACTICES
AND RISK FACTORS
DERIVATIVE INVESTMENTS. The Fund may, but is not required to, use various
investment strategic transactions described below to earn income, facilitate
portfolio management and mitigate risks. Such strategic transactions are
generally accepted under modern portfolio management and are regularly used by
many mutual funds and other institutional investors. Although the Fund's
investment adviser seeks to use the practices to further the Fund's investment
objective, no assurance can be given that these practices will achieve this
result.
The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
futures contracts and options thereon (including but not limited to securities
index futures, foreign currency exchange futures, interest rate futures and
other financial futures), structured notes, swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. In addition, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objective of
the Fund. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a
portfolio management or hedging technique to seek to protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale
of certain securities for investment purposes, protect against changes in
currency exchange rates, or adjust the exposure to a particular currency, manage
the effective maturity or duration of the Fund's portfolio, establish positions
in the derivatives markets as a substitute for purchasing or selling particular
securities, including, for example, when the Fund adjusts its exposure to a
market in response to changes in investment strategy, when doing so provides
more liquidity than the direct purchase of the securities underlying such
derivatives, when the Fund is restricted from directly owning the underlying
securities due to foreign investment
13
<PAGE> 16
restrictions or other reasons, or when doing so provides a price advantage over
purchasing the underlying securities directly, either because of a pricing
differential between the derivatives and securities markets or because of lower
transaction costs associated with the derivatives transaction. The Fund may
invest up to 33 1/3% of its total assets in Strategic Transactions for
non-hedging purposes (measured by the aggregate notional amount of outstanding
derivatives). In addition, the Fund may invest up to 20% of its total assets in
futures contracts and options on futures contracts (measured by the aggregate
notional amount of such outstanding contracts).
Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can
otherwise realize on an investment, or may cause the Fund to hold a security
that it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses because of the imposition of exchange controls, suspension
of settlements or the inability of the Fund to deliver or receive a specified
currency. In addition, amounts paid as premiums or cash or other assets held in
margin accounts with respect to Strategic Transactions are not otherwise
available to the Fund for investment purposes.
When conducted outside the U.S., Strategic Transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information. The Statement of
Additional Information can be obtained by investors free of charge as described
on the back cover of this prospectus.
OTHER PRACTICES. For cash management purposes, the Fund may engage in repurchase
agreements with banks and broker-dealers and other financial institutions in
order to earn a return on temporarily available cash. Such transactions are
subject to the risk of default by the other party.
The Fund may purchase and sell securities in an amount up to 15% of its net
assets on a "when-issued" and "delayed delivery" basis. The Fund accrues no
income on such securities until the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price. The
value or yield generally available on comparable securities when delivery occurs
may be higher than the value or yield on the securities obtained pursuant to
such transactions. Because the Fund relies on the buyer or seller to consummate
the transaction, failure by the other party to complete the transaction may
result in the Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. The Fund will engage in when-issued and delayed
delivery transactions for the purpose of acquiring securities consistent with
the Fund's investment objective and policies and not for the purpose of
investment leverage.
The Fund may lend its portfolio securities in an amount up to 33 1/3% of its
total assets to broker-dealers, banks or other recognized institutional
borrowers of securities. The Fund may incur lending fees and other costs in
connection with securities lending, and securities lending is subject to the
risk of default by the other party.
14
<PAGE> 17
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Notwithstanding the foregoing, the Fund may
not invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale except that the Fund may invest up to 20% of
its total assets in securities which can be offered and sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended. Such securities may be difficult or impossible to sell at the time and
the price that the Fund would like. Thus, the Fund may have to sell such
securities at a lower price, sell other securities instead to obtain cash or
forego other investment opportunities.
The Fund may invest in securities indirectly through investment in other
investment companies. Such investments are commonly used when a direct
investment in certain countries is not permitted by foreign investors.
Investments in other investment companies may involve duplication of management
fees and certain other expenses.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities or when the
Fund's investment adviser believes the potential for total return has lessened
or for other reasons. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs (including brokerage commissions or dealer costs) and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than if the Fund had a lower portfolio turnover rate. Increases in the
Fund's transaction costs would adversely impact the Fund's performance. The
turnover rate will not be a limiting factor, however, if the Fund's investment
adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks and in investment
grade corporate debt securities. Under normal market conditions, the potential
for total return on these securities will tend to be lower than the potential
for total return on other securities that may be owned by the Fund. In taking
such a defensive position, the Fund would not be pursuing and may not achieve
its investment objective.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser, subadviser and other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund's investment adviser and subadviser are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurances that these steps will be
sufficient to avoid any adverse impact to the Fund. In addition, the Year 2000
Problem may adversely affect the markets and the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
shares of the Fund. Improperly functioning trading systems may result in
settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Efforts in foreign countries to remediate the potential Year 2000
Problem may not be as extensive as those in the U.S. As a result, the operations
of foreign markets and issuers may be disrupted by the Year 2000 Problem which
could adversely affect the Fund's portfolio. The risks are greater with respect
to certain developing or emerging market countries;
15
<PAGE> 18
because there is an increased likelihood that issuers of securities of such
countries cannot anticipate or effectively manage the effects of computer
programs and the Year 2000 Problem. Accordingly, the Fund's investments may be
adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
INVESTMENT ADVISER
Van Kampen Investment Advisory Corp. is the investment adviser (the "Adviser" or
"Advisory Corp.") and administrator of the Fund. The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $79 billion under management or supervision as of
September 30, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT. The Fund retains the Adviser to
manage the investment of its assets and to place orders for the purchase and
sale of its portfolio securities. Under an investment advisory agreement between
the Adviser and the Fund (the "Advisory Agreement"), the Fund pays the Adviser a
monthly fee computed based upon an annual rate of 0.75% applied to the average
daily net assets of the Fund.
The Fund also retains the Adviser to provide administrative services for the
Fund's day-to-day operations. Under an administration agreement, between the
Fund and the Adviser, the Fund pays a monthly administration fee computed based
upon an annual rate of 0.25% applied to the average daily net assets of the
Fund.
The Adviser furnishes offices, necessary facilities and equipment, provides
administrative services, and permits its officers and employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The Fund pays all charges and expenses of its day-to-day operations, including
the compensation of directors of the Fund (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
INVESTMENT SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. (the "Subadviser") is the
Subadviser of the Fund. The Subadviser is a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and is an affiliate of the Adviser. The Subadviser
conducts a worldwide portfolio management business and provides a broad range of
portfolio management services to customers in the United States and abroad. At
June 30, 1999, the Subadviser, together with its affiliated institutional asset
management companies, managed assets of approximately $175.3 billion, including
assets under fiduciary advice. The Subadviser's principal office is located at
1221 Avenue of the Americas, New York, New York 10020. On December 1, 1998,
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
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<PAGE> 19
SUBADVISORY AGREEMENT. The Adviser has entered into a subadvisory agreement with
the Subadviser to assist the Adviser in performing its investment advisory
functions. The Adviser pays the Subadviser on a monthly basis a portion of the
net advisory fees the Adviser receives from the Fund.
GENERAL
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Subadviser and their respective employees. The
Codes of Ethics permit directors, trustees, officers and employees to buy and
sell securities for their personal accounts subject to certain restrictions.
Persons with access to certain sensitive information are subject to
pre-clearance and other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. Robert Angevine, Stephen F. Esser and Gordon W. Loery are
responsible as comanagers for the day-to-day management of the Fund's investment
portfolio.
Mr. Angevine is a Principal of Morgan Stanley Dean Witter & Co. and the
Subadviser and is the portfolio manager for high yield investments. Prior to
joining the Subadviser in October 1988, he spent over eight years at Prudential
Insurance where he was responsible for one of the largest open-end high yield
mutual funds in the country. Prior to 1980, his other experience includes
international treasury operations at a major pharmaceutical company and
commercial banking. Mr. Angevine received a B.A. in Economics from Lafayette
College and an M.B.A. from Fairleigh Dickinson University. Mr. Angevine has been
comanager of the Fund since it commenced investment operations.
Mr. Esser joined the Subadviser in 1996 and has been a portfolio manager with
Miller Anderson & Sherrerd, LLP (an affiliate of the Adviser "MAS") since 1988.
Mr. Esser was previously with Kidder Peabody and Co., Incorporated from 1985 to
1988 where he served as Assistant Vice President of the Fixed Income Group. He
assumed responsibility for the MAS Fund's High Yield Portfolio in 1989. Mr.
Esser is a member of the New York Society of Security Analysts and holds a B.S.
degree (Summa Cum Laude; Phi Beta Kappa) from the University of Delaware. Mr.
Esser has been comanager of the Fund since April 1996.
Mr. Loery, currently a Principal of the Subadviser, joined the Subadviser as a
fixed income analyst in 1990. Previously, he worked in Fixed Income at Alex
Brown and Mabon Neugent and managed commodity pools for a private firm. He has a
degree in economics from Cornell University, is a Chartered Financial Analyst
and a member of the NYSSA. Mr. Loery has been comanager of the Fund since April
1999.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting
17
<PAGE> 20
from such deferred sales charge arrangement, (ii) generally, each class of
shares has exclusive voting rights with respect to approvals of the Rule 12b-1
distribution plan and service plan (each as described below) under 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 offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Directors reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange.
Securities listed on a securities exchange for which market quotations are
available are valued at their closing price. If no closing price is available,
such securities will be valued at the last quoted sale price on the day the
valuation is made. Price information on listed securities is taken from the
exchange where the security is primarily traded. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are not
readily available are valued at the average of the mean of current bid and asked
prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest and
most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith by the Adviser at fair value
using methods determined by the Fund's Board of Directors. For purposes of
calculating net asset value per
18
<PAGE> 21
share, all assets and liabilities initially expressed in foreign currencies will
be converted into U.S. dollars at the mean of the bid price and asked price of
such currencies against the U.S. dollar as quoted by a major bank.
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. Under the Distribution Plan and the Service Plan, the Fund pays
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses of the Fund associated with such class of
shares. To assist investors in comparing classes of shares, the tables under the
heading "Fees and Expenses of the Fund" provide a summary of sales charges and
expenses and an example of the sales charges and expenses of the Fund applicable
to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
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 of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
19
<PAGE> 22
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
AS % OF AS % OF
SIZE OF OFFERING NET AMOUNT
INVESTMENT PRICE INVESTED
---------- -------- ----------
<S> <C> <C>
Less than $100,000 4.75% 4.99%
---- ----
$100,000 but less than $250,000 3.75% 3.90%
---- ----
$250,000 but less than $500,000 2.75% 2.83%
---- ----
$500,000 but less than $1,000,000 2.00% 2.04%
---- ----
$1,000,000 or more (*) (*)
---- ----
</TABLE>
(*) No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund may impose a
contingent deferred sales charge of 1.00% on certain redemptions made
within one year of the purchase. The contingent deferred sales charge is
assessed on an amount equal to the lesser of the then current market value
or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within five years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- ------------------
<S> <C>
First 4.00%
----
Second 4.00%
----
Third 3.00%
----
Fourth 2.50%
----
Fifth 1.50%
----
Sixth and After None
----
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. 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 contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month. In determining whether a contingent deferred sales charge applies
to a redemption, it is assumed shares
20
<PAGE> 23
being redeemed first are any shares in the shareholder's Fund account that are
not subject to a contingent deferred sales charge followed by shares held the
longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and (ii)
the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the
21
<PAGE> 24
time of purchase of such shares and (v) if made by involuntary liquidation by
the Fund of a shareholder's account as described under the heading "Redemption
of Shares." Subject to certain limitations, a shareholder who has redeemed Class
C Shares of the Fund may reinvest in Class C Shares at net asset value with
credit for any contingent deferred sales charge if the reinvestment is made
within 180 days after the redemption. For a more complete description of
contingent deferred sales charge waivers, please refer to the Fund's Statement
of Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling
22
<PAGE> 25
firms or purchases by persons affiliated with the Fund or the Distributor. The
Fund reserves the right to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM.
The Fund permits unitholders of unit investment trusts to reinvest distributions
from such trusts in Class A Shares of the Fund at net asset value per share and
with no minimum initial or subsequent investment requirement, if the
administrator of an investor's unit investment trust program meets certain
uniform criteria relating to cost savings by the Fund and the Distributor. The
total sales charge for all other investments made from unit investment trust
distributions will be 1.00% of the offering price (1.01% of net asset value). Of
this amount, the Distributor will pay to the authorized dealer, if any, through
which such participation in the qualifying program was initiated 0.50% of the
offering price as a dealer concession or agency commission. Persons desiring
more information with respect to this program, including the terms and
conditions that apply to the program, should contact their authorized dealer or
the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, all dividends and other distributions
by the Fund must be reinvested in additional shares and there can not be any
systematic withdrawal program. There will be no minimum for reinvestments from
unit investment trusts. The Fund will send account activity statements to such
participants on a quarterly basis only, even if their investments are made more
frequently. The Fund reserves the right to modify or terminate this program at
any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families
and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or, in
the case of any such financial institution, when purchasing for retirement
plans for such institution's employees; provided that such purchases are
otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor
and which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap
23
<PAGE> 26
accounts"), provided the bank or broker-dealer has a separate agreement
with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or custodial accounts held by a bank created
pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code and assets held
by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen Trust Company serves as custodian will not be eligible for net asset
value purchases based on the aggregate investment made by the plan or the
number of eligible employees, except under certain uniform criteria
established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve-month period as
follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million,
plus 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participants account in connection with this privilege will
be subject to a contingent deferred sales charge of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
24
<PAGE> 27
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of
$1 million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so
25
<PAGE> 28
they will be received prior to such time. Redemptions completed through an
authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. To redeem shares, contact the telephone transaction
line at (800) 421-5684. Van Kampen Investments, Investor Services and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Directors is to distribute all or substantially all of this income, less
expenses, at least 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.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net
26
<PAGE> 29
realized capital gain represents the total profits from sales of securities
minus total losses from sales of securities (including any losses carried
forward from prior years), other than net short-term capital gain from sales of
securities held for one year or less. The Fund distributes any taxable net
realized capital gain to shareholders as capital gain dividends at least
annually. As in the case of dividends, capital gain dividends are automatically
reinvested in additional shares of the Fund at the next determined net asset
value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911 ((800)
421-2833 for the hearing impaired) or by writing to Investor Services. The
investor may, on the initial application or prior to any declaration, instruct
that dividends be paid in cash and capital gain dividends be reinvested at net
asset value, or that both dividends and capital gain dividends be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for 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. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of one Participating Fund and purchases of another
Participating Fund. The sale may result in a gain or loss for federal income tax
purposes. If the shares sold have been held for less than 91 days, the sales
charge paid on such shares is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
the shareholder
27
<PAGE> 30
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. Van Kampen Investments, Investor Services and the
Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape-recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain dividend options (except
dividend diversification) and authorized dealer of record as the account from
which shares are exchanged, unless otherwise specified by the shareholder. In
order to establish a systematic withdrawal plan for the new account or reinvest
dividends from the new account into another fund, however, an exchanging
shareholder must submit a specific request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
and other Participating Funds may restrict exchanges by shareholders engaged in
excessive trading by limiting or disallowing the exchange privileges to such
shareholders. For further information on these restrictions see the Statement of
Additional Information. The Fund may modify, restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund that the shareholder
is purchasing 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.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, none of Van Kampen Investments, Investor Services or the Fund will be
liable for following instructions received through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gain) 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
realized capital gain (which is the excess of net long-term capital gain over
net short-term
28
<PAGE> 31
capital loss) as capital gain dividends, if any, are taxable to shareholders as
long-term capital gains, whether paid in cash or reinvested in additional
shares, and regardless of how long the shares of the Fund have been held by such
shareholders. The Fund expects that its distributions will consist primarily of
ordinary income and capital gain dividends. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any capital gains may be
taxed at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Accordingly, investment in the Fund is likely to be
appropriate for a foreign shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such U.S. withholding tax.
Prospective foreign investors should consult their tax advisers concerning the
tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
29
<PAGE> 32
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Class A
Year Ended June 30, May 1, 1996* to
Selected Per Share Data and Ratios 1999# 1998# 1997 June 30, 1996
---------------------------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 12.661 $ 12.86 $ 11.92 $ 12.00
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income/Loss ....................................... 1.006 0.97 1.07 0.13
Net Realized and Unrealized Gain/Loss ............................ (0.790) 0.35 0.99 (0.09)
-------- -------- -------- --------
Total From Investment Operations .................................... 0.216 1.32 2.06 0.04
-------- -------- -------- --------
Distributions
Net Investment Income ............................................ (0.967) (0.97) (1.07) (0.12)
Net Realized Gain ................................................ (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain ................................... (0.140) -- -- --
-------- -------- -------- --------
Total Distributions .............................................. (1.195) (1.52) (1.12) (0.12)
-------- -------- -------- --------
Net Asset Value, End of Period ...................................... $ 11.682 $ 12.66 $ 12.86 $ 11.92
======== ======== ======== ========
Total Return(1) ..................................................... 1.90% 10.81% 18.12% 0.29%**
======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (000's) ................................... $ 8,120 $ 7,813 $ 8,980 $ 3,907
Ratio of Expenses to Average Net Assets ............................. 1.25% 1.25% 1.25% 1.25%
Ratio of Net Investment Income/Loss to Average Net Assets ........... 8.39% 7.42% 8.83% 6.85%
Portfolio Turnover Rate ............................................. 41% 81% 104% 10%**
-------- -------- -------- --------
Effect of Voluntary Expense Limitation During the Period Per Share
Benefit to Net Investment Income/Loss ............................ $ 0.06 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets ................................... 1.72% 1.89% 2.04% 3.51%
Net Investment Income/Loss to Average Net Assets ................. 7.93% 6.78% 8.04% 4.59%
<CAPTION>
Class B
Year Ended June 30, May 1, 1996* to
Selected Per Share Data and Ratios 1999# 1998# 1997 June 30, 1996
---------------------------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 12.630 $ 12.86 $ 11.93 $ 12.00
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income/Loss ....................................... 0.912 0.87 0.98 0.12
Net Realized and Unrealized Gain/Loss ............................ (0.776) 0.34 0.99 (0.09)
-------- -------- -------- --------
Total From Investment Operations .................................... 0.136 1.21 1.97 0.03
-------- -------- -------- --------
Distributions
Net Investment Income ............................................ (0.883) (0.89) (0.99) (0.10)
Net Realized Gain ................................................ (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain ................................... (0.140) -- -- --
-------- -------- -------- --------
Total Distributions .............................................. (1.111) (1.44) (1.04) (0.10)
-------- -------- -------- --------
Net Asset Value, End of Period ...................................... $ 11.655 $ 12.63 $ 12.86 $ 11.93
======== ======== ======== ========
Total Return(1) ..................................................... 1.28% 9.86% 17.22% 0.21%**
======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (000's) ................................... $ 22,667 $ 18,420 $ 8,617 $ 3,421
Ratio of Expenses to Average Net Assets ............................. 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income/Loss to Average Net Assets ........... 7.63% 6.70% 7.99% 6.08%
Portfolio Turnover Rate ............................................. 41% 81% 104% 10%**
-------- -------- -------- --------
Effect of Voluntary Expense Limitation During the Period Per Share
Benefit to Net Investment Income/Loss ............................ $ 0.06 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets ................................... 2.48% 2.64% 2.82% 4.25%
Net Investment Income/Loss to Average Net Assets ................. 7.16% 6.04% 7.17% 3.83%
<CAPTION>
Class C
Year Ended June 30, May 1, 1996* to
Selected Per Share Data and Ratios 1999# 1998# 1997 June 30, 1996
---------------------------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 12.634 $ 12.86 $ 11.93 $ 12.00
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income/Loss ....................................... 0.912 0.86 0.99 0.12
Net Realized and Unrealized Gain/Loss ............................ (0.775) 0.35 0.98 (0.09)
-------- -------- -------- --------
Total From Investment Operations .................................... 0.137 1.21 1.97 0.03
-------- -------- -------- --------
Distributions
Net Investment Income ............................................ (0.883) (0.89) (0.99) (0.10)
Net Realized Gain ................................................ (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain ................................... (0.140) -- -- --
-------- -------- -------- --------
Total Distributions .............................................. (1.111) (1.44) (1.04) (0.10)
-------- -------- -------- --------
Net Asset Value, End of Period ...................................... $ 11.660 $ 12.63 $ 12.86 $ 11.93
======== ======== ======== ========
Total Return(1) ..................................................... 1.28% 9.86% 17.21% 0.21%**
======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (000's) ................................... $ 7,879 $ 8,145 $ 4,970 $ 3,316
Ratio of Expenses to Average Net Assets ............................. 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income/Loss to Average Net Assets ........... 7.61% 6.63% 8.03% 6.07%
Portfolio Turnover Rate ............................................. 41% 81% 104% 10%**
-------- -------- -------- --------
Effect of Voluntary Expense Limitation During the Period Per Share
Benefit to Net Investment Income/Loss ............................ $ 0.06 $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets ................................... 2.48% 2.64% 2.88% 4.25%
Net Investment Income/Loss to Average Net Assets ................. 7.14% 6.01% 7.15% 3.82%
</TABLE>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
# Changes per share are based upon monthly average shares outstanding.
30
<PAGE> 33
APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of
the obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE AAA: Debt rated "AAA" has the highest
rating assigned by S&P. Capacity to meet its financial commitment on the
obligation is extremely strong. AA: Debt rated "AA" differs from the highest
rated issues only in small degree. Capacity to meets its financial commitment on
the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE> 34
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment.
In addition, the laws of various states governing legal investments impose
certain ratings or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1 ".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE> 35
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE> 36
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE> 37
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE> 38
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE> 39
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
J. Miles Branagan Don G. Powell(*)
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini(*) Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen(*)
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
OFFICERS
Richard F. Powers, III(*)
President
Dennis J. McDonnell(*)
Executive Vice President & Chief Investment Officer
A. Thomas Smith III(*)
Vice President and Secretary
Edward C. Wood III(*)
Vice President
Michael H. Santo(*)
Vice President
Peter W. Hegel(*)
Vice President
Stephen L. Boyd(*)
Vice President
Joseph P. Stadler(*)
Vice President
John L. Sullivan(*)
Vice President, Chief Financial Officer & Treasurer
Curtis W. Morell(*)
Vice President & Chief Accounting Officer
Tanya M. Loden(*)
Controller
(*) "Interested Persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call
(800) 421-2833
FUNDINFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
Van Kampen High Yield and Total Return Fund
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser and Administrator
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen High Yield and Total Return Fund
Custodian
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, NY 11245
Attn: Van Kampen High Yield and Total Return Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
A-7
<PAGE> 40
VAN KAMPEN
HIGH YIELD AND TOTAL
RETURN FUND
PROSPECTUS
OCTOBER 28, 1999
A Statement of Additional Information, which contains more details about
the Fund is incorporated by reference in its entirety into this prospectus.
You will find additional information about the Fund in its annual and
semiannual reports to shareholders. The annual report explains the market
conditions and investment strategies affecting the Fund's performance
during its last fiscal year.
You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling (800) 341-2911 from 7:00
a.m. to 7:00 p.m., Central time, Monday through Friday. Telecommunications
Device for the Deaf users may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our web site at www.vankampen.com.
Information about the Fund, including its reports and Statement of
Additional Information, has been filed with the Securities and Exchange
Commission (SEC). It can be reviewed and copied at the SEC's Public
Reference Room in Washington, DC or on the EDGAR Database on the SEC's
internet site (http://www.sec.gov). Information on the operation of the
SEC's Public Reference Room may be obtained by calling the SEC at 1-202-
942-8090. You can also request copies of these materials, upon payment of a
duplicating fee, by electronic request at the SEC's e-mail address
([email protected]), or by writing the Public Reference Section of the
SEC, Washington, DC, 20549-0102.
VAN KAMPEN
FUNDS
The Fund's Investment Company Act File No. is 811-7140. MSHY PRO 10/99
