<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 2000
REGISTRATION NOS. 2-62115
811-2851
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 44 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 39 [X]
</TABLE>
VAN KAMPEN
HIGH INCOME CORPORATE BOND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copies To:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 29, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par
value $0.01 per share
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN
HIGH INCOME
CORPORATE BOND FUND
Van Kampen High Income Corporate Bond Fund's
primary investment objective is to seek to
maximize current income. Capital appreciation
is a secondary objective which is sought only
when consistent with the Fund's primary
investment objective. The Fund's investment
adviser seeks to achieve the Fund's investment
objectives by investing primarily in a
portfolio of high-yielding, high-risk bonds
and other income securities, such as
convertible securities and preferred stock.
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 DECEMBER 29, 2000.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS
[VAN KAMPEN FUNDS LOGO]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 6
Investment Objectives, Policies and Risks......... 6
Investment Advisory Services...................... 14
Purchase of Shares................................ 15
Redemption of Shares.............................. 21
Distributions from the Fund....................... 23
Shareholder Services.............................. 23
Federal Income Taxation........................... 25
Financial Highlights.............................. 27
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> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to seek to maximize current income.
Capital appreciation is a secondary objective which is sought only when
consistent with the Fund's primary investment objective.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the Fund's investment objectives
by investing primarily in a portfolio of high-yielding, high-risk bonds and
other income securities, such as convertible securities and preferred stock.
Under normal market conditions, the Fund's investment adviser invests at least
80% of the Fund's total assets in a portfolio of medium- and lower-grade income
securities. Lower-grade securities are commonly referred to as "junk bonds." The
Fund buys and sells securities with a view towards 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. In selecting securities for
investment, the Fund's investment adviser seeks to identify securities which
entail reasonable credit risk considered in relation to the Fund's investment
policies. The Fund's investment adviser uses an investment strategy of
fundamental credit analysis and emphasizes issuers that it believes will remain
financially sound and perform well in a range of market conditions. Portfolio
securities are typically sold when the investment adviser's fundamental
assessment of an issuer materially changes.
Under normal market conditions, the Fund invests at least 65% of its total
assets in corporate bonds and other income securities with maturities greater
than one year. The Fund may invest up to 35% of its total assets in securities
of issued by foreign governments or foreign corporations. The Fund may purchase
and sell certain derivative instruments, such as options, futures and options on
futures, for various portfolio management purposes.
INVESTMENT RISKS
An investment in the Fund is subject to risks, and you could lose money on your
investment in the Fund. There can be no assurance that the Fund will achieve its
investment objectives.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in medium- and
lower-grade securities, the Fund is subject to a higher level of credit risk
than a fund that invests only in 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
expenses to protect the Fund's interests 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.
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. Although the Fund has no policy limiting the
maturities of its investments, the Fund's investment adviser seeks to maintain a
portfolio duration of two to six years. This means that the Fund is subject to
greater market risk than a fund investing solely in shorter-term securities (see
"Investment Objectives, Policies and Risks" for an explanation of maturities and
durations). Medium- and 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 price in response to negative issuer
developments 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.
3
<PAGE> 5
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates and credit risk, 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 would likely 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 INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures are
examples of derivative instruments. Derivative instruments involve risks
different from direct investments 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; and risks that the transactions may not be liquid.
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 objectives and strategies, the Fund may be
appropriate for investors who:
- Seek a high level of current income
- Are willing to take on the substantially increased risks of medium- and
lower-grade securities in exchange for potentially higher income
- Wish to add to their investment portfolio a fund that invests primarily in
medium- and lower-grade income securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. An investment in the Fund 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.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the ten 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>
1990 -16.06
---- ------
<S> <C>
1991 42.18
1992 16.72
1993 19.27
1994 -3.01
1995 17.28
1996 13.46
1997 13.50
1998 0.46
1999 3.90
</TABLE>
The Fund's return for the nine-month period ended September 30, 2000 was -0.22%.
As a result of market activity, current performance may vary from the figures
shown.
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
4
<PAGE> 6
all of the Fund's shares are invested in the same portfolio of securities;
however, the actual annual returns of the Class B Shares and Class C Shares
would be lower than the annual returns shown for the Fund's Class A Shares
because of differences in the expenses borne by each class of shares.
During the ten-year period shown in the bar chart, the highest quarterly return
for Class A Shares was 15.00% (for the quarter ended March 31, 1991) and the
lowest quarterly return for Class A Shares was -9.72% (for the quarter ended
September 30, 1990).
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* and the Chase Global High Yield Index**, two broad-based
market indices that the Fund's investment adviser believes are appropriate
benchmarks for the Fund, and the Lipper High Yield Bond Fund Index, an index of
funds with similar investment objectives. The Fund's performance figures listed
below include the maximum sales charges paid by investors. The indices'
performance figures do not include any commissions or sales charges that would
be paid by investors purchasing the securities represented by the indices. An
investment cannot be made directly in the indices. Average annual total returns
are shown for the periods ended December 31, 1999 (the most recently completed
calendar year prior to the date of this prospectus). Remember that the past
performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns Past
for the 10 Years
Periods Ended Past Past or Since
December 31, 1999 1 Year 5 Years Inception
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen High
Income Corporate Bond
Fund
-- Class A Shares -1.08% 8.47% 9.25%
Credit Suisse First
Boston High Yield
Index 3.28% 9.07% 11.06%
Chase Global High
Yield Index 3.37% 9.64% 11.28%
Lipper High Yield
Bond Fund Index 4.78% 9.46% 10.34%
...........................................................
Van Kampen High
Income Corporate Bond
Fund
-- Class B Shares -0.52% 8.46% 8.02%***(1)
Credit Suisse First
Boston High Yield
Index 3.28% 9.07% 9.04%(2)
Chase Global High
Yield Index 3.37% 9.64% 9.33%(2)
Lipper High Yield
Bond Fund Index 4.78% 9.46% 8.99%(2)
...........................................................
Van Kampen High
Income Corporate Bond
Fund
-- Class C Shares 2.31% 8.67% 6.61%(3)
Credit Suisse First
Boston High Yield
Index 3.28% 9.07% 7.87%(4)
Chase Global High
Yield Index 3.37% 9.64% 8.20%(4)
Lipper High Yield
Bond Fund Index 4.78% 9.46% 7.69%(4)
...........................................................
</TABLE>
Inception dates: (1) 7/2/92, (2) 6/30/92, (3) 7/6/93, (4) 6/30/93.
* Credit Suisse First Boston High Yield Index is an unmanaged, broad-based
index that reflects the general performance of a wide range of selected
corporate bonds within the public high-yield debt market. Based on changes
in the Credit Suisse First Boston High Yield Index, the Fund's investment
adviser believes the Chase Global High Yield Index is a more appropriate
benchmark for this Fund. The Credit Suisse First Boston High Yield Index
will not be shown in future prospectuses.
**Chase Global High Yield Index is an unmanaged, broad-based index that
reflects the general performance of the global high yield corporate debt
market, including domestic and international issues.
*** The "Since Inception" performance for Class B Shares reflects the
conversion of such shares into Class A Shares six years after purchase.
Class B Shares purchased on or after June 1, 1996 will convert to Class A
Shares eight years after purchase. See "Purchase of Shares."
The current yield for the thirty-day period ended August 31, 2000 is 11.23% for
Class A Shares, 10.97% for Class B Shares and 11.04% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911 or through the internet at www.vankampen.com.
5
<PAGE> 7
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
---------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering 4.75%(1) None None
price)
...............................................................
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 fee None None None
...............................................................
Exchange fee None None None
...............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------------
Management fees 0.53% 0.53% 0.53%
...............................................................
Distribution and/or
service
(12b-1) fees(5) 0.25% 1.00%(6) 1.00%(6)
...............................................................
Other expenses 0.25% 0.25% 0.25%
...............................................................
Total annual fund
operating expenses 1.03% 1.78% 1.78%
...............................................................
</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) 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."
(6) 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> <C>
Class A Shares $575 $787 $1,017 $1,675
..............................................................
Class B Shares $581 $860 $1,114 $1,897*
..............................................................
Class C Shares $281 $560 $ 964 $2,095
..............................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $575 $787 $1,017 $1,675
.............................................................
Class B Shares $181 $560 $ 964 $1,897*
.............................................................
Class C Shares $181 $560 $ 964 $2,095
.............................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund's primary investment objective is to seek to maximize current income.
Capital appreciation is a secondary objective that the Fund will seek only when
consistent with the Fund's primary investment objective. The Fund's investment
objectives may be changed by the Fund's Board of Trustees without shareholder
approval, but no change is anticipated. If the Fund's
6
<PAGE> 8
investment objectives change, the Fund will notify shareholders and shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. There are risks inherent in all
investments in securities; accordingly, there can be no assurance that the Fund
will achieve its investment objectives.
The Fund's investment adviser seeks to achieve the Fund's investment objectives
by investing primarily in a portfolio of high-yielding, high-risk bonds and
other income securities, including convertible securities and preferred stock.
Under normal market conditions, the Fund's investment adviser invests at least
80% of the Fund's total assets in medium- and lower-grade income securities,
which includes securities rated at the time of purchase BBB or lower by Standard
& Poor's ("S&P") or rated Baa or lower by Moody's Investors Service, Inc.
("Moody's") and unrated securities determined by the Fund's investment adviser
to be of comparable quality at the time of purchase. 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 and unrated
securities of comparable quality are commonly referred to as "junk bonds," and
involve special risks as compared to investments in higher-grade securities.
Investors should carefully consider the section below entitled "Risks of
Investing in Medium- and Lower-Grade Securities." Under normal market
conditions, the Fund invests at least 65% of its total assets in corporate bonds
and other income securities with maturities greater than one year. Certain types
of income securities are subject to additional risks, see "Additional
Information Regarding Certain Income Securities" below.
The Fund buys and sells securities with a view towards 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 an
investment strategy of in-depth, fundamental credit analysis and emphasizes
issuers that it believes will remain financially sound and perform well in a
range of market conditions. In its effort to enhance value and diversify the
Fund's portfolio, the Fund's investment adviser may seek investments in cyclical
issues or out-of-favor areas of the market to contribute to the Fund's
performance.
The higher income and potential for capital appreciation sought by the Fund are
generally obtainable from securities in the medium- and 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 income 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.
UNDERSTANDING
QUALITY RATINGS
Income securities ratings are based on the issuer's ability to pay interest
and repay the principal. Income securities with ratings above the line are
considered "investment grade," while those with ratings below the line are
regarded as "noninvestment grade." A detailed explanation of these and other
ratings can be found in the appendix to this prospectus.
<TABLE>
<CAPTION>
Moody's S&P Meaning
------------------------------------------------------
<C> <S> <C>
Aaa AAA Highest quality
......................................................
Aa AA High quality
......................................................
A A Above-average quality
......................................................
Baa BBB Average quality
------------------------------------------------------
Ba BB Below-average quality
......................................................
B B Marginal quality
......................................................
Caa CCC Poor quality
......................................................
Ca CC Highly speculative
......................................................
C C Lowest quality
......................................................
-- D In default
......................................................
</TABLE>
7
<PAGE> 9
The Fund's investment adviser seeks to minimize the risks involved in investing
in medium- and lower-grade securities through diversification and a focus on
in-depth research and fundamental credit analysis. In selecting securities for
investment, the Fund's investment adviser considers, among other things, the
security's current income potential, the rating assigned to the security, the
issuer's experience and managerial strength, the financial soundness of the
issuer and the outlook of its industry, changing financial condition, borrowing
requirements or debt maturity schedules, regulatory concerns, and responsiveness
to changes in business conditions and interest rates. The Fund's investment
adviser also may consider relative values based on anticipated cash flow,
interest or dividend coverage, balance sheet analysis, and earnings prospects.
The investment adviser evaluates each individual income security for credit
quality and value and attempts to identify higher-yielding securities of
companies whose financial condition has improved since the issuance of such
securities or is anticipated to improve in the future. Because of the number of
investment considerations involved in investing in medium- and lower-grade
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.
The value of income securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, income security prices
generally fall; if interest rates fall, income security prices generally rise.
Shorter-term securities are generally less sensitive to interest rate changes
than longer-term securities; thus, for a given change in interest rates, the
market prices of shorter-maturity securities generally fluctuate less than the
market prices of longer-maturity securities. Income securities with shorter
maturities generally offer lower yields than income securities with longer
maturities assuming all other factors, including credit quality, are equal.
While the Fund has no policy limiting the maturities of the debt securities in
which it may invest, the Fund's investment adviser seeks to moderate risk by
normally maintaining a portfolio duration of two to six years. Duration is a
measure of the expected life of a debt security that was developed as a more
precise alternative to the concept of "term to maturity." Duration incorporates
a debt security's yield, coupon interest payments, final maturity and call
features into one measurement. A duration calculation looks at the present value
of a security's entire payment stream, whereas term to maturity is based solely
on the date of a security's final principal repayment.
RISK OF INVESTING IN MEDIUM- AND LOWER-GRADE INCOME SECURITIES
Securities that are in the medium- or 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 medium- or 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. Medium- and 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 medium- or lower-grade income
securities to pay interest and to repay principal, to meet projected financial
goals or to obtain additional financing. In the
UNDERSTANDING
MATURITIES
An income security can be categorized according to its maturity, which is
the length of time before the issuer must repay the principal.
<TABLE>
<CAPTION>
Term Maturity Level
-----------------------------------------------------
<C> <S>
1-3 years Short
.....................................................
4-10 years Intermediate
.....................................................
More than 10 years Long
.....................................................
</TABLE>
UNDERSTANDING
DURATION
Duration provides an alternative approach to assessing a security's market
risk. Duration measures the expected life of a security by incorporating the
security's yield, coupon interest payments, final maturity and call features
into one measure. Whereas maturity focuses only on the final principal
repayment date of a security, duration looks at the timing and present value
of all of a security's principal, interest or other payments. Typically, a
bond with interest payments due prior to maturity has a duration less than
maturity. A zero-coupon bond, which does not make interest payments prior to
maturity, would have the same duration and maturity.
8
<PAGE> 10
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 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 income 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. Income securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than income securities with shorter maturities. While the Fund has no
fundamental policy limiting the maturities of the individual income securities
in which it may invest, the Fund's investment adviser seeks to maintain a
portfolio duration of two to six years. However, the secondary market prices of
medium- or lower-grade 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 securities. A significant increase in
interest rates or a general economic downturn could severely disrupt the market
for medium- or 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 medium- or 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 medium- or 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 medium-or lower-grade
securities.
The markets for medium- or 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 medium- or lower-grade securities in which the Fund may invest, trading
in such securities may be relatively inactive. Prices of medium- or 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
medium- or 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 Trustees. During
periods of reduced market liquidity or in the absence of readily available
market quotations for medium- or 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. 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, and thereby is
included in the required minimum distributions to shareholders
9
<PAGE> 11
without providing the corresponding cash flow with which to pay such
distributions. The Fund must distribute substantially all of its investment
company taxable income to its shareholders to qualify for pass-through treatment
under federal income tax law and may, therefore, have to dispose of portfolio
securities to satisfy distribution requirements. The Fund's investment adviser
will weigh these concerns against the expected total returns from such
instruments. See "Additional Information Regarding Certain Income Securities"
below.
The Fund may invest in securities rated below B by both Moody's and S&P, common
stocks or other equity securities and income securities on which interest or
dividends are not being paid when such investments are consistent with the
Fund's investment objectives or are acquired as part of a unit consisting of a
combination of income or equity securities. Equity securities as referred to
herein do not include preferred stocks (which the Fund considers income
securities). The Fund will not purchase any such securities which will cause
more than 20% of its total assets to be so invested or which would cause more
than 10% of its total assets to be invested in common stocks, warrants and
options on equity securities. This limitation does not require the Fund to sell
a portfolio security because its rating has been changed.
The Fund's investments may include securities with the lowest-grade assigned by
recognized rating organizations and unrated securities of comparable quality.
Securities assigned the lowest grade ratings include those of companies that are
in default or are in bankruptcy or reorganization. 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 medium- and lower-grade income securities are not listed for trading on any
national securities exchange, and issuers of medium- and lower-grade income
securities may choose not to have a rating assigned to their obligations by any
nationally recognized statistical 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
medium- or 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 medium- or 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. Credit ratings of securities rating
organizations evaluate only the safety of principal and interest payments, not
the market 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 income securities
are not rated, the Fund will invest in such securities based on the analysis of
the Fund's investment adviser without any guidance from published ratings.
Because of the number of investment considerations involved in investing in
medium- or lower-grade securities and foreign income 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.
10
<PAGE> 12
New or proposed laws may have an impact on the market for medium- or 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 medium- or lower-grade
securities.
Special tax considerations are associated with investing in certain medium- or
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.
The table below sets forth the percentage of the Fund's assets during the fiscal
year ended August 31, 2000 invested in the various rating categories (based on
the higher of the S&P or Moody's ratings), and unrated debt 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 year computed on a monthly
basis.
<TABLE>
<CAPTION>
Fiscal year ended August 31, 2000
Unrated Securities of
Rated Securities Comparable Quality
(As a Percentage of (As a Percentage of
Category Portfolio Value) Portfolio Value)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa 0.09% 0.00%
....................................................................
AA/Aa 0.00% 0.00%
....................................................................
A/A 0.00% 0.00%
....................................................................
BBB/Baa 1.67% 0.00%
....................................................................
BB/Ba 8.79% 0.01%
....................................................................
B/B 76.63% 3.68%
....................................................................
CCC/Caa 7.21% 0.91%
....................................................................
CC/Ca 0.38% 0.00%
....................................................................
C/C 0.50% 0.00%
....................................................................
D 0.02% 0.11%
....................................................................
Percentage
of Rated
and
Unrated
Debt
Securities 95.29% 4.71%
....................................................................
</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
Zero-coupon securities are income securities 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 any reinvestment of interest payments
at prevailing interest rates 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 income securities that pay interest through the
issuance of additional securities. Prices on such 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.
The amount of non-cash interest income earned on zero-coupon securities and
payment-in-kind securities 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.
11
<PAGE> 13
RISKS OF INVESTING IN
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 35% of its total assets in securities issued by
foreign governments and other foreign issuers which are similar in quality to
the securities described above. Securities of foreign issuers may be denominated
in U.S. dollars or in currencies other than U.S. dollars. The Fund's investment
adviser believes that in certain instances such foreign income securities may
provide higher yields than securities of domestic issuers which have similar
maturities.
Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign 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 income or
capital transactions or other restrictions, higher transaction costs (including
higher brokerage, custodial and settlement costs and currency conversion costs)
and possible difficulty in enforcing contractual obligations or taking judicial
action. 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 and financial reporting
disclosure requirements than domestic issuers. There is generally less
government regulation of exchanges, brokers and listed companies abroad than in
the United States, and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of foreign exchanges,
brokers and dealers than there is in the United States, the Fund may experience
settlement difficulties or delays not usually encountered in the United States.
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.
The Fund may invest in securities of issuers in developing or emerging market
countries. Investments in securities of issuers in developing or emerging market
countries are subject to greater risks than investments in securities of
developed countries since emerging market countries tend to have economic
structures that are less diverse and mature and political systems that are less
stable than developed countries.
In addition to the increased risks of investing in foreign issuers, there are
often increased transaction 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 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 yield on such assets. In addition, the Fund will
incur costs in connection with conversions between various currencies.
Many European countries have adopted or are in the process of adopting a single
European currency, commonly referred to as the "euro". The long-term
consequences of the euro conversion on foreign exchange rates, interest rates
and the value of European securities, all of which may adversely affect the
Fund, are still uncertain.
The risks of foreign investments should be considered carefully by an investor
in the Fund.
USING OPTIONS, FUTURES CONTRACTS
AND RELATED OPTIONS
The Fund may, but is not required to, use various investment strategic
transactions, including options, futures and options on futures, in several
different ways depending upon the status of the Fund's portfolio and the
expectations of the Fund's investment adviser concerning the securities markets.
Although the Fund's investment adviser seeks to use the practices to further the
Fund's investment objectives, no assurance can be
12
<PAGE> 14
given that the use of these practices will achieve this result.
The Fund can engage in options transactions on securities, indices or on futures
to attempt to manage the portfolio's risk in advancing or declining markets. For
example, the value of a put option generally increases as the value of the
underlying security declines below a specified level. Value is protected against
a market decline to the degree the performance of the put correlates with the
performance of the Fund's investment portfolio. If the market remains stable or
advances, the Fund can refrain from exercising the put and its portfolio will
participate in the advance, having incurred only the premium cost for the put.
Generally, the Fund expects that options will be purchased or sold on securities
exchanges. However, the Fund is authorized to purchase and sell listed and
over-the-counter options ("OTC Options"). OTC Options are subject to certain
additional risks including default by the other party to the transaction and the
liquidity of the transactions.
The Fund may enter into contracts for the purchase or sale for future delivery
of fixed-income securities or contracts based on financial indices including any
index of U.S. government securities or foreign government securities (futures
contracts) and may purchase and write put and call options to buy or sell
futures contracts (options on futures contracts). A sale of a futures contract
means the acquisition of a contractual obligation to deliver the securities
called for by the contract at a specified price on a specified date. A purchase
of a futures contract means the incurring of a contractual obligation to acquire
the securities called for by the contract at a specified price on a specified
date. The purchaser of a futures contract on an index agrees to take delivery of
an amount of cash equal to the difference between a specified multiple of the
value of the index on the expiration date of the contract and the price at which
the contract was originally struck. No physical delivery of the fixed-income
securities underlying the index is made. These investment techniques generally
are used to protect against anticipated future changes in interest or exchange
rates which otherwise might either adversely affect the value of the Fund's
portfolio securities or adversely affect the price of securities which the Fund
intends to purchase at a later date.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from the direct investment in
underlying securities. In addition, some strategies can be performed with
greater ease and at lower cost by utilizing the options and futures markets
rather than purchasing or selling portfolio securities or currencies. However,
such transactions involve risks different from the direct investment in
underlying securities. For example, there may be imperfect correlation between
the value of the instruments and the underlying assets. In addition, the risks
of such instruments include the risks of default by the other party to certain
transactions. The Fund may incur losses in using these instruments that
partially or completely offset gains in portfolio positions. These transactions
may not be liquid and involve manager risk. In addition, such transactions may
involve commissions and other costs, which may increase the Fund's expenses and
reduce its return.
A more complete discussion of options, futures contracts and related options and
their risks is contained in the Fund's Statement of Additional Information which
can be obtained by investors free of charge as described on the back cover of
this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
broker-dealers, banks and other financial institutions to earn a return on
temporarily available cash. Such transactions are subject to the risk of default
by the other party.
The Fund may lend its portfolio securities in an amount up to 10% of the Fund's
total assets to broker-dealers, banks and other institutional borrowers of
securities to generate income on the loaned security and any collateral
received. The Fund may incur lending fees and other costs in connection with
securities lending, and securities lending is subject to the risk of default by
the other party.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
13
<PAGE> 15
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.
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 yield
differentials, or for other reasons. The portfolio turnover rate may vary from
year to year. A high portfolio turnover rate (100% or more) increases a fund's
transaction costs (including brokerage commissions or dealer costs), which would
adversely impact a fund's performance. Higher portfolio turnover may result in
the realization of more short-term capital gains than if a fund had lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Fund's investment adviser considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may, on a temporary basis, hold cash or invest a
portion or all of its assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, prime commercial paper,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of at least $500 million, repurchase agreements and
short-term money market instruments. Under normal market conditions, the yield
on these securities will tend to be lower than the yield on other securities
that may be owned by the Fund. In taking such a defensive position, the Fund
would temporarily not be pursuing and may not achieve its investment objectives.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company that administers more than
three million retail investor accounts, has extensive capabilities for managing
institutional portfolios, and has more than $100 billion under management or
supervision as of September 30, 2000. Van Kampen Investments has more than 50
open-end funds, more than 30 closed-end funds and more than 2,700 unit
investment trusts that are distributed by 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, Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to the average daily net assets of
the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
----------------------------------------------------------
<S> <C> <C> <C>
First $150 million 0.625%
..........................................................
Next $150 million 0.550%
..........................................................
Over $300 million 0.500%
..........................................................
</TABLE>
Applying this fee schedule, the effective advisory fee rate was of 0.53% of the
Fund's average daily net assets for the Fund's fiscal year ended August 31,
2000. The Fund's average daily net assets are determined by taking the average
of all of the determinations of the net assets during a given calendar month.
Such fee is payable for each calendar month as soon as practicable after the end
of that month.
Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment, and provides administrative services to the Fund. The
Fund pays all charges and expenses of its day-to-day operations, including
service fees, distribution fees, custodian fees, legal and independent
accountant fees, the costs of reports and proxies to shareholders, compensation
of trustees of the Trust (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments) and all other ordinary business
expenses not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by
14
<PAGE> 16
reducing other expenses of the Fund in accordance with such limitations as the
Adviser or Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Distributor have
adopted Codes of Ethics designed to recognize the fiduciary relationships among
the Fund, the Adviser, the Distributor 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. The Fund is managed by portfolio managers headed by Robert
J. Hickey, a Vice President of the Adviser. Mr. Hickey joined Advisory Corp. in
1988 and became Assistant Vice President of Advisory Corp. in January 1993. Mr.
Hickey has been a Vice President of the Adviser and Advisory Corp. since June
1995. Mr. Hickey has managed the Fund's portfolio since June 1999. Peter Ehret,
a Vice President of the Adviser, has assisted in the Fund's portfolio management
since June 1999. Mr. Ehret has been working for Advisory Corp. since July 1992,
and he became an Assistant Vice President of Advisory Corp. in 1994 and the
Adviser in January 1999. Mr. Ehret became a Vice President of the Adviser and
Advisory Corp. in February 1999.
PURCHASE OF SHARES
GENERAL
This prospectus offers three classes of shares of the Fund, designated as Class
A Shares, Class B Shares and Class C Shares. Other classes of shares of the Fund
may be offered through one or more separate prospectuses of the Fund. By
offering multiple classes of shares, the Fund permits each investor to choose
the class of shares that is most beneficial given the type of investor the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments generally must be at least $1,000 per investor account, and
subsequent investments must be at least $25 per investor account. Minimum
investment amounts may be waived by the Distributor for plans involving periodic
investments and for certain retirement accounts.
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 generally bear the sales charge expenses at the time of
redemption and any expenses (including higher distribution fees and transfer
agency costs) resulting from such deferred sales charge arrangement, (ii) each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and the service plan (each as described below)
under which the class's distribution fee and/or the 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 Trustees reserves the right to calculate the net
asset value per share and adjust the offering price 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,
15
<PAGE> 17
less all liabilities (including accrued expenses) attributable to such class, by
the total number of shares of the class outstanding. Portfolio securities listed
or traded on a national securities exchange are valued at the last reported
sales prices on the exchanges where principally traded. Unlisted securities and
listed securities for which the last sales price is not available are valued at
the mean between the last reported bid price and asked price. Securities for
which market quotations are not readily available and any other assets are
valued at their fair value as determined in good faith by the Adviser in
accordance with procedures established by the Fund's Board of Trustees.
Short-term securities are valued in the manner described in the notes to the
financial statements included in the Fund's Statement of Additional Information.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each of its Class A Shares, Class B Shares and Class C Shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund also has adopted a service plan (the "Service Plan") with
respect to each such 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 such class and the maintenance of
shareholder accounts.
The amount of distribution fees 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 fees 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 service fees and other expenses of the Fund associated
with that class of shares. To assist investors in comparing classes of shares,
the tables under the Prospectus 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 offered herein.
The shares are offered on a continuous basis through the Distributor as
principal underwriter, which is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555. Shares may be purchased 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 account
application form and forwarding the account application form, 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 through this
prospectus, investors must specify whether the purchase is for Class A Shares,
Class B Shares or Class C Shares by selecting the correct Fund number on the
account application form. 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 determined 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.
16
<PAGE> 18
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 by telephone at (800)
341-2911 or by writing to the Fund, c/o Van Kampen Investor Services Inc., PO
Box 218256, Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
----------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund 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 the 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
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 Class A Shares of the Fund.
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> <C> <C>
First 4.00%
........................................................
Second 4.00%
........................................................
Third 3.00%
........................................................
Fourth 2.50%
........................................................
Fifth 1.50%
........................................................
Sixth and After None
........................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital 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 each purchase of Class B Shares
until the time of redemption of such shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the 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 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 Class B Shares of the Fund.
17
<PAGE> 19
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 that the 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 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 Class C Shares of the Fund.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, including Class B Shares
received from reinvestment of distributions through the dividend reinvestment
plan, 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, including Class B Shares received from reinvestment of
distributions through the dividend reinvestment plan, automatically convert to
Class A Shares six years after the end of the calendar month in which the shares
were purchased. Class C Shares purchased before January 1, 1997, including Class
C Shares received from reinvestment of distributions through the dividend
reinvestment plan, automatically convert to Class A Shares ten 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 time of purchase of such shares and (v) if made by the
Fund's involuntary liquidation of a shareholder's account as described under the
Prospectus 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 provided that
shares of the Fund are available for sale at the time of such reinvestment. 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
18
<PAGE> 20
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 pay the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds currently owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating 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 Letter of Intent does not preclude the Fund (or any other Participating
Fund) from discontinuing the sale of its shares. 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 expiration of the Letter of Intent
to give effect to the lower sales charge. Such adjustment in sales charge will
be used to purchase additional shares. 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 charges previously paid. Such payments may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain the difference.
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 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.
19
<PAGE> 21
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.
To obtain these special benefits, all dividends and other distributions from 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, generally 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 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 January 1, 2000, that (1) the
total plan assets are at least $1 million 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 January 1, 2000 based on net asset
value purchase privileges previously in
20
<PAGE> 22
effect will be qualified to purchase shares of the Participating Funds at
net asset value. 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. 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 $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 and grandchildren under
21 years of age, parents, and the parents of the person's spouse.
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.
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 Prospectus 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/trustee of a retirement plan account may involve additional fees
charged by the dealer or custodian/trustee.
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 redemption 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. A distribution-in-kind may result
in recognition by the shareholder of a gain or loss for federal income tax
purposes when such securities are distributed, and the shareholder may have
brokerage costs and a gain or loss for federal income tax purposes upon the
shareholder's disposition of such securities. If the shares to be redeemed have
been recently purchased by check, Investor Services may delay the payment of
redemption proceeds until it confirms that the purchase check has
21
<PAGE> 23
cleared, which may take up to 15 calendar days from the date of purchase. A
taxable gain or loss may be recognized by the shareholder upon redemption of
shares. Certificated shares must be properly endorsed for transfer and must
accompany a written redemption request.
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 or dollar amount to be redeemed, the Fund
name and 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 $100,000, 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 15 calendar 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 request to be in proper form.
In some cases, however, additional documents may be necessary. Certificated
shares may be redeemed only by written request. The certificates for the shares
being redeemed must be properly endorsed for transfer and must accompany the
written redemption request. Generally, in the event a redemption is requested by
and registered to a corporation, partnership, trust, fiduciary, estate or other
legal entity owning shares of the Fund, 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. Retirement plan
distribution requests should be sent to the plan custodian/trustee to be
forwarded to Investor Services. Contact the plan custodian/ trustee 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. The redemption price for such shares is
the net asset value per share next calculated after an order in proper form is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the account application
form. For accounts that are not established with telephone redemption
privileges, a shareholder may call the Fund at (800) 341-2911 to request that a
copy of the Telephone Redemption Authorization form be sent to the shareholder
for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Shares may also be redeemed by telephone through FundInfo(R)
(automated telephone system), which is generally accessible 24 hours a day,
seven days a week at (800) 847-2424. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions,
tape-recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
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 most
accounts
22
<PAGE> 24
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 15 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account 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 net
investment income. The Fund's present policy, which may be changed at any time
by the Fund's Board of Trustees, is to declare daily and to distribute monthly
all, or substantially all, of this net investment income 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. The Fund distributes any net 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 Fund's Statement of Additional Information or contact your
authorized dealer.
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 instructions regarding internet transactions. Van
Kampen Investments and its subsidiaries, including Investor Services, and the
Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated 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
23
<PAGE> 25
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
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 account application form or prior to any declaration,
instruct that dividends and/or capital gain dividends be paid in cash, be
reinvested in the Fund at the next determined net asset value or be invested in
another Participating Fund at the next determined net asset value.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to debit the shareholder's bank
account on a regular basis to invest predetermined amounts in the Fund.
Additional information is available from the Distributor or your authorized
dealer.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are not in escrow may write
checks against such shareholder's account by completing the Authorization for
Redemption by Check form and the appropriate section of the account application
form and returning the forms to Investor Services. Once the forms are properly
completed, signed and returned, a supply of checks (redemption drafts) will be
sent to the Class A shareholder. Checks can be written to the order of any
person in any amount of $100 or more.
When a check is presented to the custodian bank, State Street Bank & Trust
Company (the "Bank"), for payment, full and fractional Class A Shares required
to cover the amount of the check are redeemed from the shareholder's Class A
Shares account by Investor Services at the next determined net asset value per
share. Check writing redemptions represent the sale of Class A Shares. Any gain
or loss realized on the redemption of shares is a taxable event.
Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A Shares account, the
check will be returned and the shareholder may be subject to additional charges.
A shareholder may not liquidate the entire account by means of a check. The
check writing privilege may be terminated or suspended at any time by the Fund
or by the Bank and neither shall incur any liability for such amendment or
termination or for effecting redemptions to pay checks reasonably believed to be
genuine or for returning or not paying on checks which have not been accepted
for any reason. Retirement plans and accounts that are subject to backup
withholding are not eligible for the checkwriting privilege.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next determined 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. 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 an 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
24
<PAGE> 26
Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales of shares of one Participating Fund and purchases
of shares 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, through FundInfo(R) (automated telephone system) which is generally
accessible 24 hours a day seven days a week at (800) 847-2424 or through the
internet at www.vankampen.com. A shareholder automatically has these exchange
privileges unless the shareholder indicates otherwise by checking the applicable
box on the account application form. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape-
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
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 privilege to such shareholders. For further information
on these restrictions, see the Fund's 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 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 that shares of the
funds involved in the request are priced will be processed on the next business
day in the manner described herein.
FEDERAL INCOME TAXATION
Distributions of the Fund's investment company taxable income (consisting
generally of ordinary 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 capital gain (which is the excess of net long-term capital
gain over net short-term 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
25
<PAGE> 27
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a shareholder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such shareholder (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 may be a taxable transaction for federal income
tax purposes. Shareholders who sell their shares will generally recognize a 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 by the
shareholder as a capital asset, the gain or loss will be a capital gain or loss.
Any recognized capital gains may be taxed at different rates depending on how
long the shareholder held the 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 investment company taxable 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 and disposing of shares
of the Fund, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
26
<PAGE> 28
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 for the fiscal year ended August 31, 2000 has been audited by Ernst
& Young LLP, independent auditors, whose report, along with the Fund's most
recent 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. The information for the
fiscal years ended August 31, 1999, 1998, 1997 and 1996 has been audited by
PricewaterhouseCoopers LLP. This information should be read in conjunction with
the financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Class A Shares
Year Ended August 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $5.68 $6.06 $6.55 $6.30 $6.15
------ ------ ------ ------ ------
Net Investment
Income............ .59 .63 .61 .60 .61
Net Realized and
Unrealized
Gain/Loss......... (.43) (.37) (.48) .27 .14
------ ------ ------ ------ ------
Total from Investment
Operations.......... .16 .26 .13 .87 .75
Less Distributions
from Net Investment
Income.............. .60 .64 .62 .62 .60
------ ------ ------ ------ ------
Net Asset Value, End
of the Period....... $5.24 $5.68 $6.06 $6.55 $6.30
====== ====== ====== ====== ======
Total Return.......... 3.09%(a) 4.41%(a) 1.66%(a) 14.44%(a) 12.66%(a)
Net Assets at End of
the Period (In
millions)........... $465.0 $492.4 $499.3 $468.6 $421.4
Ratio of Expenses to
Average Net Assets
(b)................. 1.03% 1.03% 1.00% 1.08% 1.08%
Ratio of Net
Investment Income to
Average Net Assets
(b)................. 10.90% 10.65% 9.33% 9.37% 9.65%
Portfolio Turnover.... 68% 51% 90% 75% 76%
<CAPTION>
Class B Shares
Year Ended August 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $5.68 $6.06 $6.56 $6.31 $6.16
------ ------ ------ ------ ------
Net Investment
Income............ .55 .58 .57 .56 .56
Net Realized and
Unrealized
Gain/Loss......... (.43) (.37) (.49) .26 .14
------ ------ ------ ------ ------
Total from Investment
Operations.......... .12 .21 .08 .82 .70
Less Distributions
from Net Investment
Income.............. .55 .59 .58 .57 .55
------ ------ ------ ------ ------
Net Asset Value, End
of the Period....... $5.25 $5.68 $6.06 $6.56 $6.31
====== ====== ====== ====== ======
Total Return.......... 2.43%(b) 3.57%(b) 0.77%(b) 13.58%(b) 11.78%(b)
Net Assets at End of
the Period (In
millions)........... $268.7 $318.2 $283.1 $198.0 $114.6
Ratio of Expenses to
Average Net Assets
(b)................. 1.78% 1.79% 1.79% 1.86% 1.87%
Ratio of Net
Investment Income to
Average Net Assets
(b)................. 10.15% 9.88% 8.52% 8.60% 8.86%
Portfolio Turnover.... 68% 51% 90% 75% 76%
<CAPTION>
Class C Shares
Year Ended August 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $5.65 $6.04 $6.53 $6.28 $6.14
------ ----- ----- ------ ------
Net Investment
Income............ .55 .58 .57 .56 .55
Net Realized and
Unrealized
Gain/Loss......... (.43) (.38) (.49) .26 .14
------ ----- ----- ------ ------
Total from Investment
Operations.......... .12 .20 .08 .82 .69
Less Distributions
from Net Investment
Income.............. .55 .59 .57 .57 .55
------ ----- ----- ------ ------
Net Asset Value, End
of the Period....... $5.22 $5.65 $6.04 $6.53 $6.28
====== ===== ===== ====== ======
Total Return.......... 2.45%(c) 3.42%(c) 0.93%(c) 13.64%(c) 11.66%(c)
Net Assets at End of
the Period (In
millions)........... $59.4 $67.3 $55.8 $30.8 $17.5
Ratio of Expenses to
Average Net Assets
(b)................. 1.78% 1.79% 1.79% 1.86% 1.87%
Ratio of Net
Investment Income to
Average Net Assets
(b)................. 10.15% 9.87% 8.49% 8.57% 8.86%
Portfolio Turnover.... 68% 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent
deferred sales charge ("CDSC"). On purchases of $1 million or more, a CDSC
of 1% may be imposed on certain redemptions made within one year of
purchase. If the sales charges were included, total returns would be
lower.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within the first and second year of
purchase and declining thereafter to 0% after the fifth year. If the sales
charge was included, total returns would be lower.
(c) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(d) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to the
Adviser's reimbursement of certain expenses was less than 0.01%.
27
<PAGE> 29
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 credit rating is a current opinion of the creditworthiness of an obligor
with respect to a financial 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 obligor 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; and
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 creditors' rights.
LONG-TERM CREDIT RATINGS -- INVESTMENT GRADE
AAA: An obligation rated "AAA" has the highest rating assigned by S&P. Capacity
to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated "AA" differs from the highest rated issues only in small
degree. Capacity to meet its financial commitment on the obligation is very
strong.
A: An obligation 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: An obligation 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: Obligations 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: An obligation 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: An obligation 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: An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated "CC" is currently highly vulnerable to nonpayment.
A- 1
<PAGE> 30
C: A subordinated debt or preferred stock obligation rated "C" is currently
highly vulnerable to nonpayment. 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: An obligation 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 highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of noncredit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities.
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.
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: A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However adverse economic conditions or changing circumstances are
more likely to lead to a weakening capacity of the obligor to meet its financial
commitment on the obligation.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or
A- 2
<PAGE> 31
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
financial obligation 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.
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:
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 through Caa. 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 a ranking in the lower end of
that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
A- 3
<PAGE> 32
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.
SHORT-TERM DEBT
Moody's short-term issuer ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. 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 issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins 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 in 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.
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.
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
A- 4
<PAGE> 33
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 thus 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 classifications
"aa" through "b". The modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
A- 5
<PAGE> 34
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto+
R. Craig Kennedy Wayne W. Whalen*
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Stephen L. Boyd*
Executive Vice President and Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
John H. Zimmermann, III*
Vice President
Michael H. Santo*
Vice President
Richard A. Ciccarone*
Vice President
John R. Reynoldson*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer and Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
+ Retiring effective December 31, 2000.
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 INCOME CORPORATE BOND FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen High Income Corporate Bond Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen High Income Corporate Bond Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Auditors
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
<PAGE> 35
VAN KAMPEN
HIGH INCOME
CORPORATE BOND FUND
Class A Shares
Class B Shares
Class C Shares
PROSPECTUS
DECEMBER 29, 2000
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 LOGO]
The Fund's Investment Company Act
File No. is 811-2851.
HYI PRO 12/00
65147
<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
HIGH INCOME CORPORATE BOND FUND
Van Kampen High Income Corporate Bond Fund (the "Fund") is a mutual fund
with the primary investment objective of seeking to maximize current income.
Capital appreciation is a secondary objective which is sought only when
consistent with the Fund's primary investment objective. The Fund's investment
adviser seeks to achieve the Fund's investment objectives by investing primarily
in a portfolio of high-yielding, high-risk bonds and other income securities,
such as convertible securities and preferred stock.
The Fund is organized as a diversified series of the Van Kampen High Income
Corporate Bond Fund, an open-end management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833
for the hearing impaired).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objectives, Policies and Risks................... B-3
Options, Futures Contracts and Related Options.............. B-7
Investment Restrictions..................................... B-12
Trustees and Officers....................................... B-15
Investment Advisory Agreement............................... B-22
Other Agreements............................................ B-23
Distribution and Service.................................... B-23
Transfer Agent.............................................. B-26
Portfolio Transactions and Brokerage Allocation............. B-27
Shareholder Services........................................ B-28
Redemption of Shares........................................ B-31
Contingent Deferred Sales Charge-Class A.................... B-31
Waiver of Class B and Class C Contingent Deferred Sales
Charges................................................... B-31
Taxation.................................................... B-33
Fund Performance............................................ B-36
Other Information........................................... B-39
Report of Independent Auditors.............................. F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-17
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED DECEMBER 29, 2000.
<PAGE> 37
GENERAL INFORMATION
The Fund was originally incorporated in Texas on July 11, 1978 organized
under the name American Capital High Yield Investments, Inc. The Fund was
reincorporated by merger into a Maryland corporation on July 2, 1992, under the
name American Capital High Income Corporate Bond Fund, Inc. As of August 5,
1995, the Fund was reorganized as a series of the Trust, under the name Van
Kampen American Capital High Income Corporate Bond Fund. The Trust is a business
trust organized under the laws of the State of Delaware. On July 14, 1998, the
Fund and the Trust adopted their present names.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co.("Morgan Stanley Dean Witter"). The principal
office of the Trust, the Fund, the Adviser, the Distributor and Van Kampen
Investments is located at 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555. The principal office of Investor Services is located at 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153.
Morgan Stanley Dean Witter is a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally is identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series and separate votes are taken by each
class of a series on matters affecting an individual class of such series. For
example, a change in investment policy for a series would be voted upon by
shareholders of only the series involved and a change in the distribution fee
for a class of a series would be voted upon by shareholders of only the class of
such series involved. Except as otherwise described in the Prospectus or herein,
shares do not have cumulative voting rights, preemptive rights or any
conversion, subscription or exchange rights.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be less than the liquidation
proceeds to holders of Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
outstanding and entitled to vote (or such higher vote as may be required by the
1940 Act or other applicable law) and except that the Trustees cannot amend the
Declaration of Trust to impose any liability on
B-2
<PAGE> 38
shareholders, make any assessment on shares or impose liabilities on the
Trustees without approval from each affected shareholder or Trustee, as the case
may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of December 1, 2000, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT
NAME AND ADDRESS DECEMBER 1, CLASS PERCENTAGE
OF HOLDER 2000 OF SHARES OWNERSHIP
---------------- ------------ --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company.................................... 15,821,027 A 18.98%
2800 Post Oak Blvd. 5,080,427 B 9.80%
Houston, TX 77056 807,956 C 6.95%
Edward Jones & Co. ......................................... 6,943,096 A 8.33%
Attn Mutual Fund 2,598,514 B 5.01%
Shareholder Accounting 1,070,994 C 9.21%
201 Progress Pkwy
Maryland Hts, MO 63043-3009
MLPF&S For the Sole Benefit of its Customers ............... 3,109,187 B 6.00%
Attn: Fund Administration 971J4
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit of Its Customers................ 951,158 C 8.18%
Attn Fund Administration 97BY5
9800 Dear Lake Dr. E, 2nd Fl
Jacksonville, FL 32246-6484
</TABLE>
---------------
Van Kampen Trust Company acts as custodian for certain employee benefit plans
and individual retirement accounts.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following disclosure supplements the disclosure set forth under the
same caption in the Prospectus and does not, standing alone, present a complete
or accurate explanation of the matters disclosed. Readers must refer also to
this caption in the Prospectus for a complete presentation of the matters
disclosed below.
CONVERTIBLE SECURITIES
A convertible security is a bond, debenture, note, preferred stock, warrant
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer or into cash within a particular period of time at a specified price or
formula. A convertible security generally entitles the holder to receive
interest paid or accrued on debt securities or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying equity securities. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation's capital
B-3
<PAGE> 39
structure but are usually subordinated to comparable nonconvertible securities.
Convertible securities generally do not participate directly in any dividend
increases or decreases of the underlying equity securities although the market
prices of convertible securities may be affected by any such dividend changes or
other changes in the underlying equity securities.
Equity-linked securities are instruments whose value is based upon the
value of one or more underlying equity securities, a reference rate or an index.
Equity-linked securities come in many forms and may include features, among
others, such as the following: (i) may be issued by the issuer of the underlying
equity security or by a company other than the one to which the instrument is
linked (usually an investment bank), (ii) may convert into equity securities,
such as common stock, within a stated period from the issue date or may be
redeemed for cash or some combination of cash and the linked security at a value
based upon the value of the underlying equity security within a stated period
from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of the underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
PREFERRED STOCKS
Preferred stock generally has a preference as to dividends and upon
liquidation over an issuer's common stock but ranks junior to other income
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on income securities, preferred stock dividends
are payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may provide that, in the event the issuer
fails to make a specified number of dividend payments, the holders of the
preferred stock will have the right to elect a specified number of directors to
the issuer's board. Preferred stock also may be subject to optional or mandatory
redemption provisions.
DURATION
Duration is a measure of the expected life of an income security that was
developed as an alternative to the concept of "term to maturity." Duration
incorporates an income security's yield, coupon interest payments, final
maturity and call features into one measure. Traditionally an income security's
"term to maturity" has been used as a proxy for the sensitivity of the
security's price to changes in interest rates. However, "term to maturity"
measures only the time an income security provides its final payment taking no
account of the pattern of the security's payments of interest or principal prior
to maturity. Duration is a measure of the expected life of an income security on
a present value basis expressed in years. It measures the length of the time
interval between the present and the time when the interest and principal
payments are scheduled (or in the case of a callable bond, expected to be
received), weighing them by the present value of the cash to be received at each
future point in time. For any debt security with interest payments occurring
prior to the payment of principal, duration is always less than maturity, and
for zero-coupon issues, duration and term to maturity are equal. In general, the
lower the coupon rate of interest or the longer the maturity, or the lower the
yield-to-maturity of an income security, the longer its duration; conversely,
the higher the coupon rate of interest, the shorter the maturity or the higher
the yield-to-maturity of an income security, the shorter its duration. There are
some situations where even the standard duration calculation does not properly
B-4
<PAGE> 40
reflect the interest rate exposure of a security. For example, floating and
variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by the duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
SECURITIES OF FOREIGN ISSUERS
The Fund may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. These securities are not
necessarily denominated in the same currency as the underlying securities but
generally are denominated in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about a sponsored
ADR and financial information about a company may not be as reliable for an
unsponsored ADR as it is for a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements. EDRs are receipts issued in
Europe by banks or depositories which evidence a similar ownership arrangement.
BRADY BONDS
Brady Bonds are created through the exchange of existing commercial bank
loans to foreign entities for new obligations in connection with debt
restructuring under a plan introduced by former U.S. Secretary of the Treasury
Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated) and they are actively traded in the over-the-counter
secondary market. The Fund may purchase Brady Bonds either in the primary or
secondary markets. The price and yield of Brady Bonds purchased in the secondary
market will reflect the market conditions at the time of purchase, regardless of
the stated face amount and the stated interest rate. With respect to Brady Bonds
with no or limited collateralization, the Fund will rely for payment of interest
and principal primarily on the willingness and ability of the issuing government
to make payment in accordance with the terms of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Certain Brady
Bonds are entitled to "value recovery payments" in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal
B-5
<PAGE> 41
payments which would have then been due on the Brady Bonds in the normal course.
In addition, in light of the residual risk of the Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds should be viewed as speculative.
LENDING OF SECURITIES
Consistent with applicable legal and regulatory requirements, the Fund may
lend its portfolio securities, in an amount up to 10% of the Fund's total
assets, to broker-dealers, banks and other recognized institutional borrowers of
securities provided such loans are callable at any time and are continuously
secured by collateral that is at least equal to the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to receive the interest or dividends on the loaned securities, while
at the same time earning interest on the collateral which is invested in
short-term obligations or the Fund receives an agreed upon amount of interest
from the borrower of the security. The Fund may pay reasonable finders,
administrative and custodial fees in connection with loans of its securities.
There is no assurance as to the extent to which securities loans can be
effected.
If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates, and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over collateral. As with any extensions of credit, there are risks of delay
in recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's Adviser to be
creditworthy and when the consideration which can be earned from such loans is
believed to justify the attendant risks. On termination of the loan, the
borrower is required to return the securities to the Fund; any gain or loss in
the market price during the loan would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements with broker-dealers, banks and
other financial institutions in order to earn a return on temporarily available
cash. A repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Fund may enter into repurchase
agreements with broker-dealers, banks and other financial institutions deemed to
be creditworthy by the Adviser under guidelines approved by the Fund's Board of
Trustees. The Fund will not invest in repurchase agreements maturing in more
than seven days if any such investment, together with any other illiquid
securities held by the Fund, would exceed the Fund's limitation on illiquid
securities described herein. The Fund does not bear the risk of a decline in the
value of the underlying security unless the seller defaults under its repurchase
obligation. In the event of the bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and losses including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto; (b) possible lack of access to income on the underlying security
during this period; and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available
B-6
<PAGE> 42
to the Fund investing separately. The manner in which the joint account is
managed is subject to conditions set forth in an exemptive order from the SEC
permitting this practice, which conditions are designed to ensure the fair
administration of the joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying securities
and are considered to be loans under the 1940 Act. The Fund pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies and
instrumentalities) may have maturity dates exceeding one year.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). However, the Fund
shall not invest in such securities in excess of 10% of its net assets without
prior approval of the Fund's Board of Trustees. The sale of such securities
often requires more time and results in higher brokerage charges or dealer
discounts and other selling expenses than does the sale of liquid securities
trading on national securities exchanges or in the over-the-counter markets.
Restricted securities are often purchased at a discount from the market price of
unrestricted securities of the same issuer reflecting the fact that such
securities may not be readily marketable without some time delay. Investments in
securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Adviser in accordance with
procedures approved by the Fund's Board of Trustees. Ordinarily, the Fund would
invest in restricted securities only when it receives the issuer's commitment to
register the securities without expense to the Fund. However, registration and
underwriting expenses (which typically range from 7% to 15% of the gross
proceeds of the securities sold) may be paid by the Fund. Restricted securities
which can be offered and sold to qualified institutional buyers under Rule 144A
under the 1933 Act ("144A Securities") and are determined to be liquid under
guidelines adopted by and subject to the supervision of the Fund's Board of
Trustees are not subject to the limitation on illiquid securities. Such 144A
Securities are subject to monitoring and may become illiquid to the extent
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Fund in securities of
other investment companies will not be considered investments in restricted
securities to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief (such as "no
action" letters issued by the staff of the SEC interpreting or providing
guidance on the 1940 Act or regulations thereunder) from the provisions of the
1940 Act, as amended from time to time.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may, but is not required to, use various investment strategies as
described below to earn income, facilitate portfolio management and mitigate
risks. Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur. Although the Fund's
Adviser seeks to use such transactions to further the Fund's investment
objectives, no assurance can be given that the use of these transactions will
achieve these results.
B-7
<PAGE> 43
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated account cash or liquid securities in an amount
not less than the market value of the underlying security, marked to market
daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account cash or liquid securities in an
amount of not less than the exercise price of the option, or would hold a put on
the same underlying security at an equal or greater exercise price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is lesser (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option sold. If the Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the option until a
closing purchase transaction can be entered into (or the option is exercised or
expires) even though it might not be advantageous to do so.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect against anticipated
increases in the prices of securities it wishes to acquire. Alternatively, call
options could be purchased for capital appreciation. Since the premium paid for
a call option is typically a small fraction of the price of the underlying
security, a given amount of funds will purchase call options covering a much
larger quantity of such security than could be purchased directly. By purchasing
call options, the Fund could benefit from any significant increase in the price
of the underlying security to a greater extent than had it invested the same
amount in the security directly. However, because of the very high volatility of
option premiums, the Fund would bear a significant risk of losing the
B-8
<PAGE> 44
entire premium if the price of the underlying security did not rise
sufficiently, or if it did not do so before the option expired.
Put options may be purchased to protect against anticipated declines in the
market value of either specific portfolio securities or of the Fund's assets
generally. Alternatively, put options may be purchased for capital appreciation
in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OVER THE COUNTER OPTIONS
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial institutions of other parties ("Counterparties") through direct
bilateral agreement with the Counterparty. The Fund will sell only OTC Options
(other than OTC currency options) that are subject to a buy-back provision
permitting the Fund to require to the Counterparty to sell the option back to
the Fund at a formula price within seven days. The staff of the SEC currently
takes the position that, in general, OTC Options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities covering
OTC Options sold by the Fund, are illiquid securities subject to the Fund's
limitation on illiquid securities.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes), or to take or make delivery of cash based upon the
change in value of a basket or index of securities at a specified future time
and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit an amount of cash or liquid
securities equal to a percentage (which will normally range between 2% and 10%)
of the contract amount with either a futures commission merchant pursuant to
rules and regulations promulgated under the 1940 Act or with its custodian in an
account in the broker's name. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transaction. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract, which is returned to the Fund upon termination of the futures
contract and satisfaction of its contractual obligations. Subsequent payments to
and from the initial margin account, called variation margin, are made on a
daily basis as the price of the underlying securities or index fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives a variation margin payment equal to that increase in value.
Conversely, where the Fund purchases a futures contract and the value of the
underlying security or index declines, the position is less valuable, and the
Fund is required to make a variation margin payment.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
B-9
<PAGE> 45
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provides an alternative to the liquidation of securities positions in the
Fund. Ordinarily transaction costs associated with futures transactions are
lower than transaction costs that would be incurred in the purchase and sale of
the underlying securities.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts. These include the risk of
imperfect correlation between movements in the price of the futures contracts
and of the underlying securities or index; the risk of market distortion; the
risk of illiquidity; and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
B-10
<PAGE> 46
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
The Fund will not enter into futures contracts or options transactions
(except for closing transactions) other than for bona fide hedging purposes if,
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceed 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase of
futures contracts by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as the sale of a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security or index, when the
use of an option on a future would result in a loss to the Fund when the use of
a future would not.
B-11
<PAGE> 47
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased or incur
a loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many derivative transactions, in addition to other requirements, require
that the Fund segregate cash and liquid securities to the extent the Fund's
obligations are not otherwise "covered" as described above. In general, either
the full amount of any obligation by the Fund to pay or deliver securities or
assets must be covered at all times by the securities, instruments or currency
required to be delivered (or securities convertible into the needed securities
without additional consideration), or, subject to applicable regulatory
restrictions, an amount of cash or liquid securities at least equal to the
current amount of the obligation must be segregated. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. In the case of a futures
contract or an option thereon, the Fund must deposit initial margin and possible
daily variation margin in addition to segregating cash and liquid securities
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Derivative transactions may be covered by other means when
consistent with applicable regulatory policies. The Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated cash and liquid securities, equals its net outstanding obligation.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without shareholder approval by the vote of a majority
of its outstanding voting securities, which is defined by the 1940 Act as the
lesser of (i) 67% or more of the Fund's voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy; or (ii) more than 50% of the Fund's
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. With respect to the limitations on illiquid securities and
borrowings, the percentage limitations apply at the time of purchase and on an
ongoing basis. These restrictions provide that the Fund shall not:
1. Borrow money, except that the Fund may borrow for temporary purposes in
amounts not exceeding 5% of the market or other fair value (taken at
the lower of cost or current value) of its total assets (not including
the amount borrowed). Secured temporary borrowings may take the form of
reverse repurchase agreements, pursuant to which the Fund would sell
portfolio securities for cash and simultaneously agree to repurchase
such securities at a specified date for the same amount of cash plus an
interest component. Pledge its assets or assign or otherwise encumber
them in excess of 3.25% of its net assets (taken at market value at the
time of pledging) and then only to secure borrowings effected within
the limitations set forth in the preceding sentence. Notwithstanding
the foregoing, the Fund may engage in transactions in options, futures
contracts and related options and make margin deposits and payments in
connection therewith.
B-12
<PAGE> 48
2. Engage in the underwriting of securities except insofar as the Fund may
be deemed an underwriter under the 1933 Act in disposing of a portfolio
security.
3. Make short sales of securities, but it may engage in transactions in
options, futures contracts, and related options.
4. Purchase securities on margin, except for such short-term credits as
may be necessary for the clearance of purchases and sales of portfolio
securities, and it may engage in transactions in options, futures
contracts and related options and make margin deposits and payments in
connection therewith.
5. Purchase or sell real estate, although it may purchase securities of
issuers which engage in real estate operations, securities which are
secured by interests in real estate, or securities representing
interests in real estate.
6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may enter into transactions in futures contracts and
related options.
7. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objectives and policies; (b) by investment in repurchase agreements or
(c) by lending its portfolio securities, subject to limitations
described elsewhere in this Statement of Additional Information.
8. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest
in the securities of companies which invest in or sponsor such
programs.
9. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act, as amended from time to
time.
10. Invest for the purpose of exercising control or management of another
company, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act, as
amended from time to time.
11. Invest in securities of any company if, to the knowledge of the Fund,
any officer or director of the Fund or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such company, and such
officers and directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such company.
12. Invest more than 5% of the market or other fair value of its assets in
warrants, or more than 2% of such value in warrants which are not
listed on the New York or American Stock Exchanges. Warrants attached
to other securities are not subject to these limitations.
13. Invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements which have
a maturity of longer than seven days.
14. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the U.S. government) or
purchase more than 10% of the outstanding voting securities of any one
issuer, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act, as
amended from time to time.
B-13
<PAGE> 49
15. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the U.S.
government).
16. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making
and collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts and other investment strategies and instruments that would be
considered "senior securities" but for the maintenance by the Fund of a
segregated account with its custodian or some other form of "cover".
B-14
<PAGE> 50
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of the
1632 Morning Mountain Road funds in the Fund Complex. Co-founder, and prior to
Raleigh, NC 27614 August 1996, Chairman, Chief Executive Officer and
Date of Birth: 07/14/32 President, MDT Corporation (now known as
Age: 68 Getinge/Castle, Inc., a subsidiary of Getinge
Industrier AB), a company which develops,
manufactures, markets and services medical and
scientific equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company,
53 Monarch Bay Drive and Director of Valero Energy Corporation, an
Dana Point, CA 92629 independent refining company. Trustee/Director of each
Date of Birth: 09/16/38 of the funds in the Fund Complex. Prior to January
Age: 62 1999, Chairman and Chief Executive Officer of The
Allstate Corporation ("Allstate") and Allstate
Insurance Company. Prior to January 1995, President
and Chief Executive Officer of Allstate. Prior to
August 1994, various management positions at Allstate.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Struggles, an executive
Sears Tower search firm. Trustee/Director of each of the funds in
233 South Wacker Drive the Fund Complex. Prior to 1997, Partner, Ray &
Suite 7000 Berndtson, Inc., an executive recruiting and
Chicago, IL 60606 management consulting firm. Formerly, Executive Vice
Date of Birth: 06/03/48 President of ABN AMRO, N.A., a Dutch bank holding
Age: 52 company. Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the University of
Chicago Hospitals Board, Vice Chair of the Board of
The YMCA of Metropolitan Chicago and a member of the
Women's Board of the University of Chicago. Prior to
1996, Trustee of The International House Board, a
fellowship and housing organization for international
graduate students.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States, an independent U.S. foundation created
Washington, D.C. 20016 to deepen understanding, promote collaboration and
Date of Birth: 02/29/52 stimulate exchanges of practical experience between
Age: 48 Americans and Europeans. Trustee/Director of each of
the funds in the Fund Complex.
</TABLE>
B-15
<PAGE> 51
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Formerly, advisor to the Dennis Trading Group Inc., a
managed futures and option company that invests money
for individuals and institutions. Prior to 1992,
President and Chief Executive Officer, Director and
Member of the Investment Committee of the Joyce
Foundation, a private foundation.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset
Two World Trade Center Management of Morgan Stanley Dean Witter since
66th Floor December 1998. President and Director since April 1997
New York, NY 10048 and Chief Executive Officer since June 1998 of Morgan
Date of Birth: 08/13/53 Stanley Dean Witter Advisors Inc. and Morgan Stanley
Age: 47 Dean Witter Services Company Inc. Chairman, Chief
Executive Officer and Director of Morgan Stanley Dean
Witter Distributors Inc. since June 1998. Chairman and
Chief Executive Officer since June 1998, and Director
since January 1998, of Morgan Stanley Dean Witter
Trust FSB. Director of various Morgan Stanley Dean
Witter subsidiaries. President of the Morgan Stanley
Dean Witter Funds since May 1999. Trustee/Director of
each of the funds in the Fund Complex. Previously
Chief Strategic Officer of Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc. and Executive Vice President of Morgan
Stanley Dean Witter Distributors Inc. April 1997-June
1998, Vice President of the Morgan Stanley Dean Witter
Funds May 1997-April 1999, and Executive Vice
President of Dean Witter, Discover & Co.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company and
Winter Park, FL 32789 registered investment adviser in the State of Florida.
Date of Birth: 02/13/36 President and owner, Nelson Ivest Brokerage Services
Age: 64 Inc., a member of the National Association of
Securities Dealers, Inc. and Securities Investors
Protection Corp. Trustee/Director of each of the funds
in the Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer of Van
1 Parkview Plaza Kampen Investments. Chairman, Director and Chief
P.O. Box 5555 Executive Officer of the Advisers, the Distributor,
Oakbrook Terrace, IL 60181-5555 Van Kampen Advisors Inc. and Van Kampen Management
Date of Birth: 02/02/46 Inc. Director and officer of certain other
Age: 54 subsidiaries of Van Kampen Investments. Chief Sales
and Marketing Officer of Morgan Stanley Dean Witter
Asset Management Inc. Trustee/Director and President
of each of the funds in the Fund Complex. Trustee,
President and Chairman of the Board of other
investment companies advised by the Advisers and their
affiliates, and Chief Executive Officer of Van Kampen
Exchange Fund. Prior to May 1998, Executive Vice
President and Director of Marketing at Morgan Stanley
Dean Witter and Director of Dean Witter Discover & Co.
and Dean Witter Realty. Prior to 1996, Director of
Dean Witter Reynolds Inc.
</TABLE>
B-16
<PAGE> 52
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director (since
One ServiceMaster Way 1994) of The ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of Illinois Tool
Date of Birth: 07/08/44 Works, Inc., a manufacturing company and the Urban
Age: 56 Shopping Centers Inc., a retail mall management
company. Trustee, University of Notre Dame.
Trustee/Director of each of the funds in the Fund
Complex. Prior to 1998, Director of Stone Smurfit
Container Corp., a paper manufacturing company. From
May 1996 through February 1997 he was President, Chief
Executive Officer and Chief Operating Officer of Waste
Management, Inc., an environmental services company,
and from November 1984 through May 1996 he was
President and Chief Operating Officer of Waste
Management, Inc.
Fernando Sisto+........................... Professor Emeritus. Prior to August 1996, a George M.
155 Hickory Lane Bond Chaired Professor with Stevens Institute of
Closter, NJ 07624 Technology, and prior to 1995, Dean of the Graduate
Date of Birth: 08/02/24 School, Stevens Institute of Technology. Director,
Age: 76 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee/Director of each of the funds in the
Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate,
333 West Wacker Drive Meagher & Flom (Illinois), legal counsel to the funds
Chicago, IL 60606 in the Fund Complex and other investment companies
Date of Birth: 08/22/39 advised by the Advisers. Trustee/Director of each of
Age: 61 the funds in the Fund Complex, and Trustee/Managing
General Partner of other investment companies advised
by the Advisers.
Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy of
2101 Constitution Ave., N.W. Sciences/ National Research Council, an independent,
Room 206 federally chartered policy institution, since 1993.
Washington, D.C. 20418 Director of Neurogen Corporation, a pharmaceutical
Date of Birth: 12/27/41 company, since January 1998. Director of the German
Age: 59 Marshall Fund of the United States, Trustee of
Colorado College, and Vice Chair of the Board of the
Council for Excellence in Government. Trustee/Director
of each of the funds in the Fund Complex. Prior to
1993, Executive Director of the Commission on
Behavioral and Social Sciences and Education at the
National Academy of Sciences/National Research
Council. From 1980 through 1989, Partner of Coopers &
Lybrand.
</TABLE>
------------------------------------
+ Retiring effective December 31, 2000.
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of each of the funds in
the Fund Complex by reason of his firm currently acting as legal counsel to
each of the funds in the Fund Complex. Messrs. Merin and Powers are interested
persons of each of the funds in the Fund Complex and the Advisers by reason of
their positions with Morgan Stanley Dean Witter or its affiliates.
B-17
<PAGE> 53
OFFICERS
Messrs. Smith, Santo, Ciccarone, Reynoldson, Sullivan and Zimmermann are
located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181-5555. Mr. Boyd is
located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
A. Thomas Smith III.................. Executive Vice President, General Counsel, Secretary and
Date of Birth: 12/14/56 Director of Van Kampen Investments, the Advisers, Van
Age: 44 Kampen Advisors Inc., Van Kampen Management Inc., the
Vice President and Secretary Distributor, American Capital Contractual Services, Inc.,
Van Kampen Exchange Corp., Van Kampen Recordkeeping
Services Inc., Investor Services, Van Kampen Insurance
Agency of Illinois Inc. and Van Kampen System Inc. Vice
President and Secretary of each of the funds in the Fund
Complex and Vice President and Secretary/Vice President,
Principal Legal Officer and Secretary of other investment
companies advised by the Advisers or their affiliates.
Prior to January 1999, Vice President and Associate
General Counsel to New York Life Insurance Company ("New
York Life"), and prior to March 1997, Associate General
Counsel of New York Life. Prior to December 1993,
Assistant General Counsel of The Dreyfus Corporation.
Prior to August 1991, Senior Associate, Willkie Farr &
Gallagher. Prior to January 1989, Staff Attorney at the
Securities and Exchange Commission, Division of Investment
Management, Office of Chief Counsel.
Michael H. Santo..................... Executive Vice President, Chief Administrative Officer and
Date of Birth: 10/22/55 Director of Van Kampen Investments, the Advisers, the
Age: 45 Distributor, Van Kampen Advisors Inc., Van Kampen
Vice President Management Inc. and Van Kampen Investor Services Inc., and
serves as a Director or Officer of certain other
subsidiaries of Van Kampen Investments. Vice President of
each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers and their
affiliates. Prior to 1998, Senior Vice President and
Senior Planning Officer for Individual Asset Management of
Morgan Stanley Dean Witter and its predecessor since 1994.
From 1990-1994, First Vice President and Assistant
Controller in Dean Witter's Controller's Department.
</TABLE>
B-18
<PAGE> 54
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Stephen L. Boyd...................... Executive Vice President and Chief Investment Officer of
Date of Birth: 11/16/40 Van Kampen Investments, and President and Chief Operating
Age: 60 Officer of the Advisers. Executive Vice President and
Executive Vice President and Chief Chief Investment Officer of each of the funds in the Fund
Investment Officer Complex and certain other investment companies advised by
the Advisers or their affiliates. Prior to April 2000,
Executive Vice President and Chief Investment Officer for
Equity Investments of the Advisers. Prior to October 1998,
Vice President and Senior Portfolio Manager with AIM
Capital Management, Inc. Prior to February 1998, Senior
Vice President and Portfolio Manager of Van Kampen
American Capital Asset Management, Inc., Van Kampen
American Capital Investment Advisory Corp. and Van Kampen
American Capital Management, Inc.
Richard A. Ciccarone................. Senior Vice President and Co-head of the Fixed Income
Date of Birth: 06/15/52 Department of the Advisers, Van Kampen Management Inc. and
Age: 48 Van Kampen Advisors Inc. Prior to May 2000, he served as
Vice President Co-head of Municipal Investments and Director of Research
of the Advisers, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Mr. Ciccarone first joined the Adviser in
June 1983, and worked for the Adviser until May 1989, with
his last position being a Vice President. From June 1989
to April 1996, he worked at EVEREN Securities (formerly
known as Kemper Securities), with his last position at
EVEREN being an Executive Vice President. Since April
1996, Mr. Ciccarone has been a Senior Vice President of
the Advisers, Van Kampen Management Inc. and Van Kampen
Advisors Inc.
John R. Reynoldson................... Senior Vice President and Co-head of the Fixed Income
Date of Birth: 05/15/53 Department of the Advisers, Van Kampen Management Inc. and
Age: 47 Van Kampen Advisors Inc. Prior to May 2000, he managed the
Vice President investment grade taxable group for the Adviser since July
1999. From July 1988 to June 1999, he managed the
government securities bond group for Asset Management. Mr.
Reynoldson has been with Asset Management since April
1987, and has been a Senior Vice President of Asset
Management since July 1988. He has been a Senior Vice
President of the Adviser and Van Kampen Management Inc.
since June 1995 and Senior Vice President of Van Kampen
Advisors Inc. since June 2000.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Vice President, Chief Financial Officer and
Age: 45 Treasurer of each of the funds in the Fund Complex and
Vice President, Chief Financial certain other investment companies advised by the Advisers
Officer and Treasurer or their affiliates.
</TABLE>
B-19
<PAGE> 55
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
John H. Zimmermann, III.............. Senior Vice President and Director of Van Kampen
Date of Birth: 11/25/57 Investments, President and Director of the Distributor,
Vice President and President of Van Kampen Insurance Agency of Illinois
Age: 43 Inc. Vice President of each of the funds in the Fund
Complex. From November 1992 to December 1997, Mr.
Zimmermann was Senior Vice President of the Distributor.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 61 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of the Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex on the basis of the
relative net assets of each fund as of the last business day of the preceding
calendar quarter. The compensation of each Non-Affiliated Trustee includes a per
meeting fee from each fund in the Fund Complex in the amount of $200 per
quarterly or special meeting attended by the Non-Affiliated Trustee, due on the
date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee/director, provided
that no compensation will be paid in connection with certain telephonic special
meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
B-20
<PAGE> 56
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Complex Upon Fund
Name(1) the Board the Trust(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1991 $1,890 $40,303 $60,000 $126,000
Jerry D. Choate(1) 1999 1,890 0 60,000 88,700
Linda Hutton Heagy 1995 1,890 5,045 60,000 126,000
R. Craig Kennedy 1995 1,890 3,571 60,000 125,600
Jack E. Nelson 1995 1,890 21,664 60,000 126,000
Phillip B. Rooney 1997 1,890 7,787 60,000 113,400
Fernando Sisto 1978 1,890 72,060 60,000 126,000
Wayne W. Whalen 1995 1,890 15,189 60,000 126,000
Suzanne H. Woolsey(1) 1999 1,690 0 60,000 88,700
</TABLE>
------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Choate and Ms. Woolsey became members of the Board of Trustees
for the Fund and other funds in the Fund Complex on May 26, 1999 and
therefore do not have a full calendar year of information to report. Paul G.
Yovovich resigned as a member of the Board of Trustees for the Fund and
other funds in the Fund Complex on April 14, 2000.
(2) The amounts shown in this column represent the aggregate compensation before
deferral with respect to the Fund's fiscal year ended August 31, 2000. The
following trustees deferred compensation from the Fund during the fiscal
year ended August 31, 2000: Mr. Branagan, $1,890; Mr. Choate, $1,890; Ms.
Heagy, $1,890; Mr. Kennedy, $1,140; Mr. Nelson, $1,890; Mr. Rooney, $1,890;
Mr. Sisto, $945; and Mr. Whalen, $1,890. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of August 31, 2000 is
as follows: Mr. Branagan, $13,572; Mr. Choate, $3,309; Ms. Heagy, $12,193;
Mr. Kennedy, $10,596; Mr. Miller, $3,288; Mr. Nelson, $26,045; Mr. Robinson,
$8,049; Mr. Rooney, $14,090; Mr. Sisto, $42,623; and Mr. Whalen, $17,710.
The deferred compensation plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
retirement plan is described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 1999 before
deferral by the trustees under the deferred compensation
B-21
<PAGE> 57
plan. Because the funds in the Fund Complex have different fiscal year ends,
the amounts shown in this column are presented on a calendar year basis.
Certain trustees deferred all or a portion of their aggregate compensation
from the Fund Complex during the calendar year ended December 31, 1999. The
deferred compensation earns a rate of return determined by reference to the
return on the shares of the funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$279,250 during the calendar year ended December 31, 1999.
As of December 1, 2000, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
The Fund, the Adviser and the Distributor have adopted Codes of Ethics
(collectively, the "Code of Ethics") that set forth general and specific
standards relating to the securities trading activities of their employees. The
Code of Ethics does not prohibit employees from acquiring securities that may be
purchased or held by the Fund, but is intended to ensure that all employees
conduct their personal transactions in a manner that does not interfere with the
portfolio transactions of the Fund or other Van Kampen funds, or that such
employees take unfair advantage of their relationship with the Fund. Among other
things, the Code of Ethics prohibits certain types of transactions absent prior
approval, imposes various trading restrictions (such as time periods during
which personal transactions may or may not be made) and requires quarterly
reporting of securities transactions and other matters. All reportable
securities transactions and other required reports are to be reviewed by
appropriate personnel for compliance with the Code of Ethics. Additional
restrictions apply to portfolio managers, traders, research analysts and others
who may have access to nonpublic information about the trading activities of the
Fund or other Van Kampen funds or who otherwise are involved in the investment
advisory process. Exceptions to these and other provisions of the Code of Ethics
may be granted in particular circumstances after review by appropriate
personnel.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate
strategy and implement the Fund's investment objectives. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund, renders periodic reports to the Fund's Board of Trustees,
and permits its officers and employees to serve without compensation as trustees
of the Trust or officers of the Fund if elected to such positions. The Fund,
however, bears the cost of its day-to-day operations, including service fees,
distribution fees, custodian fees, legal and independent accountant fees, the
costs of reports and proxies to shareholders, compensation of trustees of the
Trust (other than those who are affiliated persons of the Adviser, Distributor
or Van Kampen Investments), and all other ordinary business expenses not
specifically assumed by the Adviser. The Advisory Agreement also provides that
the Adviser shall not be liable to the Fund for any actions or omissions if it
acted without willful misfeasance, bad faith, negligence or reckless disregard
of its obligations under the Advisory Agreement.
The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments,
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture
B-22
<PAGE> 58
tender solicitation fees and exchange offer fees for the Fund's benefit and to
advise the Trustees of the Fund of any other commissions, fees, brokerage or
similar payments which may be possible for the Adviser or any other direct or
indirect majority owned subsidiary of Van Kampen Investments to receive in
connection with the Fund's portfolio transactions or other arrangements which
may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year. Ordinary
business expenses include the investment advisory fee and other operating costs
paid by the Fund except (1) interest and taxes, (2) brokerage commissions, (3)
certain litigation and indemnification expenses as described in the Advisory
Agreement and (4) payments made by the Fund pursuant to the distribution plans.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Board of Trustees or (ii) by a
vote of a majority of the Fund's outstanding voting securities and (b) by a vote
of a majority of the Trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
During the fiscal years ended August 31, 2000, 1999 and 1998, the Adviser
received approximately $4,421,600, $4,751,400 and $4,358,630, respectively, in
advisory fees from the Fund.
OTHER AGREEMENTS
Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
to the Fund supplementary to those provided by the custodian. Such services are
expected to enable the Fund to more closely monitor and maintain its accounts
and records. The Fund pays all costs and expenses related to such services,
including all salary and related benefits of accounting personnel, as well as
the overhead and expenses of office space and the equipment necessary to render
such services. The Fund shares together with the other Van Kampen funds in the
cost of providing such services with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and the
remaining 75% of such costs based proportionately on the respective net assets
per fund.
During the fiscal years ended August 31, 2000, 1999 and 1998, Advisory
Corp. received approximately $54,000, $216,800 and $201,962, respectively, in
accounting services fees from the Fund.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's Board
of Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by a vote of a majority of Trustees who are not parties to
the Distribution and Service Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Distribution and
Service Agreement provides that it will terminate if assigned, and that it may
be terminated without penalty by either party on 90 days'
B-23
<PAGE> 59
written notice. Total underwriting commissions on the sale of shares of the Fund
for the last three fiscal years are shown in the chart below.
<TABLE>
<CAPTION>
AMOUNTS
TOTAL UNDERWRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------------ --------------
<S> <C> <C>
Fiscal Year Ended August 31, 2000........................... $1,241,850 $146,381
Fiscal Year Ended August 31, 1999........................... $1,782,740 $213,923
Fiscal Year Ended August 31, 1998........................... $1,996,112 $252,193
</TABLE>
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------- REALLOWED
AS % OF AS % OF TO DEALERS
OFFERING NET AMOUNT AS A % OF
SIZE OF INVESTMENT PRICE INVESTED OFFERING PRICE)
------------------ -------- ---------- ---------------
<S> <C> <C> <C>
Less than $100,000................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000...................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000...................... 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000.................... 2.00% 2.04% 1.75%
$1,000,000 or more................................... * * *
</TABLE>
------------------------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although the Fund may impose a contingent deferred sales
charge of 1.00% on certain redemptions made within one year of the purchase. A
commission or transaction fee will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for purchases
of $1 million or more computed on a percentage of the dollar value of such
shares sold as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million. For single purchases of
$20 million or more by an individual retail investor, the Distributor will
pay, at the time of purchase and directly out of the Distributor's assets (and
not out of the Fund's assets), a commission or transaction fee of 1.00% to
authorized dealers who initiate and are responsible for such purchases. The
commission or transaction fee of 1.00% will be computed on a percentage of the
dollar value of such shares sold.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying authorized dealers for certain services or
activities which are
B-24
<PAGE> 60
primarily intended to result in sales of shares of the Fund or other Van Kampen
funds. Fees may include payment for travel expenses, including lodging, incurred
in connection with trips taken by invited registered representatives for
meetings or seminars of a business nature. In some instances additional
compensation or promotional incentives may be offered to brokers, dealers or
financial intermediaries that have sold or may sell significant amounts of
shares during specified periods of time. The Distributor may provide additional
compensation to Edward D. Jones & Co. or an affiliate thereof based on a
combination of its quarterly sales of shares of the Fund and other Van Kampen
funds and increases in net assets of the Fund and other Van Kampen funds over
specified thresholds. All of the foregoing payments are made by the Distributor
out of its own assets. Such fees paid for such services and activities with
respect to the Fund will not exceed in the aggregate 1.25% of the average total
daily net assets of the Fund on an annual basis. These programs will not change
the price an investor will pay for shares or the amount that a Fund will receive
from such sale.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans." The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares, sub-agreements between the Distributor and members
of the NASD who are acting as securities dealers and NASD members or eligible
non-members who are acting as brokers or agents and similar agreements between
the Fund and financial intermediaries who are acting as brokers (collectively,
"Selling Agreements") that may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or regulation.
Brokers, dealers and financial intermediaries that have entered into
sub-agreements with the Distributor and sell shares of the Fund are referred to
herein as "financial intermediaries."
Certain financial intermediaries may be prohibited under law from providing
certain underwriting or distribution services. If a financial intermediary was
prohibited from acting in any capacity or providing any of the described
services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a financial intermediary would result in any material adverse consequences
to the Fund.
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
For Class A Shares in any given year in which the Plans are in effect, the
Plans generally provide for the Fund to pay the Distributor the lesser of (i)
the amount of the Distributor's actual expenses incurred during such year less
any deferred sales charges (if any) it received during such year (the "actual
net expenses") or (ii) the distribution and service fees at the rates specified
in the Prospectus (the "plan fees"). Therefore, to the extent the Distributor's
actual net expenses in a given year are less than the plan fees for such year,
the Fund only pays the actual net expenses. Alternatively, to the extent the
Distributor's actual net expenses in
B-25
<PAGE> 61
a given year exceed the plan fees for such year, the Fund only pays the plan
fees for such year. For Class A Shares, there is no carryover of any
unreimbursed actual net expenses to succeeding years.
The Plans for Class B Shares and Class C Shares are similar to the Plans
for Class A Shares, except that any actual net expenses which exceed plan fees
for a given year are carried forward and are eligible for payment in future
years by the Fund so long as the Plans remain in effect. Thus, for each of the
Class B Shares and Class C Shares, in any given year in which the Plans are in
effect, the Plans generally provide for the Fund to pay the Distributor the
lesser of (i) the applicable amount of the Distributor's actual net expenses
incurred during such year for such class of shares plus any actual net expenses
from prior years that are still unpaid by the Fund for such class of shares or
(ii) the applicable plan fees for such class of shares. Except as may be
mandated by applicable law, the Fund does not impose any limit with respect to
the number of years into the future that such unreimbursed actual net expenses
may be carried forward (on a Fund level basis). These unreimbursed actual net
expenses may or may not be recovered through plan fees or contingent deferred
sales charges in future years.
Because of fluctuation in net asset value, the plan fees with respect to a
particular Class B Share or Class C Share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class. As of
August 31, 2000, there were $12,202,880 and $667,996 of unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 4.54% and 1.13% of the Fund's net assets attributable
to Class B Shares and Class C Shares, respectively. If the Plans are terminated
or not continued, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
For the fiscal year ended August 31, 2000, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $1,137,845 or 0.24% of the Class A
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Class A
shareholders and for administering the Class A Share Plans. For the fiscal year
ended August 31, 2000, the Fund's aggregate expenses paid under the Plans for
Class B Shares were $2,918,712 or 1.00% of the Class B Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $2,178,648 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and $740,064
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Class B Share Plans. For the fiscal year ended August 31,
2000, the Fund's aggregate expenses paid under the Plans for Class C Shares were
$619,789 or 1.00% of the Class C Shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments: $255,650 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class C Shares of the Fund and $364,139 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Share Plans.
The Distributor has entered into agreements whereby shares of the Fund will
be offered pursuant to retirement plan alliance program(s) with the following
firms: (i) The Prudential Insurance Company of America, under which the Fund
shall be offered pursuant to the PruArray Programs, (ii) Merrill Lynch, under
which the Fund shall be offered pursuant to the Merrill Program, (iii) Buck
Consultants, Inc., and (iv) The Vanguard Group, Inc. Trustees and other
fiduciaries of retirement plans seeking to invest in multiple fund families
through a broker-dealer retirement plan alliance program should contact the
firms mentioned above for further information concerning the program(s)
including, but not limited to, minimum size and operational requirements.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc. The transfer agency prices
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive benchmarks.
B-26
<PAGE> 62
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Board of Trustees of the Fund.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker-dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Fund, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Fund's shares if it reasonably believes that the quality of execution and the
commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors
B-27
<PAGE> 63
considered by the Adviser are the respective sizes of the Fund and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Fund's Board of Trustees has adopted certain policies incorporating the
standards of Rule 17e-1 issued by the SEC under the 1940 Act which require that
the commissions paid to affiliates of the Fund must be reasonable and fair
compared to the commissions, fees or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. The rule and procedures
also contain review requirements and require the Adviser to furnish reports to
the Trustees and to maintain records in connection with such reviews. After
consideration of all factors deemed relevant, the Trustees will consider from
time to time whether the advisory fee for the Fund will be reduced by all or a
portion of the brokerage commission given to affiliated brokers.
The Fund paid the following commissions to all brokers and affiliated
brokers during the years shown:
Commissions Paid:
<TABLE>
<CAPTION>
AFFILIATED BROKERS
------------------
ALL MORGAN DEAN
BROKERS STANLEY WITTER
------- ------- ------
<S> <C> <C> <C>
Commissions paid:
Fiscal year ended August 31, 2000......................... $ 5,073 -- --
Fiscal year ended August 31, 1999......................... $13,052 -- --
Fiscal year ended August 31, 1998......................... $ 1,000 -- --
-------
Fiscal year 2000 Percentages:
Commissions with affiliate to total commissions........... 0% 0%
Value of brokerage transactions with affiliate to total
transactions........................................... 0% 0%
</TABLE>
During the fiscal year end August 31, 2000, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the Van
Kampen funds will receive statements quarterly from Investor Services showing
any reinvestments of dividends and capital gain dividends and any other activity
in the account since the preceding statement. Such shareholders also will
receive separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gain dividends and systematic purchases or
redemptions. Additional shares may be purchased at any time through authorized
dealers or by mailing a check and detailed instructions directly to Investor
Services.
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<PAGE> 64
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption of the shares represented by the certificate. In addition, if such
certificates are lost the shareholder must write to Van Kampen Funds Inc., c/o
Investor Services, PO Box 218256, Kansas City, MO 64121-8256, requesting an
"Affidavit of Loss" and obtain a Surety Bond in a form acceptable to Investor
Services. On the date the letter is received, Investor Services will calculate
the fee for replacing the lost certificate equal to no more than 1.50% of the
net asset value of the issued shares, and bill the party to whom the replacement
certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; 403(b)(7) plans in the case of employees of public school
systems and certain non-profit organizations; or other pension or profit sharing
plans. Documents and forms containing detailed information regarding these plans
are available from the Distributor. Van Kampen Trust Company serves as custodian
under the IRA, 403(b)(7) and Money Purchase and Profit Sharing Keogh plans.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS
Shareholders can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemption proceeds transferred to a
bank account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application form. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemption proceeds are to be deposited together with the
completed application. Once Investor Services has received the application and
the voided check or deposit slip, such shareholder's designated bank account,
following any redemption, will be credited with the proceeds of such redemption.
Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services or by calling (800) 341-2911 ((800) 421-2833
for the hearing impaired).
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request by completing the appropriate
section of the account application form or by calling (800) 341-2911 ((800)
421-2833 for the hearing impaired), elect to have all dividends and capital gain
dividends paid on a class of shares of the Fund invested into shares of the same
class of any of the Participating Funds so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Money Purchase and Profit
Sharing Keogh plans) and for the benefit of the same individual. If a qualified,
pre-existing account does not exist, the shareholder must establish a new
account subject to minimum investment and other requirements of the fund into
which distributions would be invested. Distributions are invested into the
selected fund, provided that shares of such fund are available for sale, at its
net asset value per share as of the payable date of the distribution from the
Fund.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a monthly, quarterly, semiannual or annual
withdrawal plan if the shareholder owns shares in a single account valued at
$10,000 or more at the next determined net asset value per share at the time the
plan is established. If a shareholder owns shares in a single account valued at
$5,000 or more at the next determined net asset value per share at the time the
plan is established, the shareholder may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each payment
represents the proceeds of
B-29
<PAGE> 65
a redemption of shares on which any capital gain or loss will be recognized. The
planholder may arrange periodic checks in any amount, not less than $25. Such a
systematic withdrawal plan may also be maintained by an investor purchasing
shares for a retirement plan which can be established on a form made available
by the Fund when Van Kampen Trust Company serves as the plan custodian. See
"Shareholder Services -- Retirement Plans."
Class B Shareholders and Class C Shareholders who establish a systematic
withdrawal plan may redeem up to 12% annually of the shareholder's initial
account balance without incurring a contingent deferred sales charge. Initial
account balance means the amount of the shareholder's investment at the time the
election to participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gain dividends
on shares held in accounts with systematic withdrawal plans are reinvested in
additional shares at the next determined net asset value per share. If periodic
withdrawals continuously exceed reinvested dividends and capital gain dividends,
the shareholder's original investment will be correspondingly reduced and
ultimately exhausted. Redemptions made concurrently with the purchase of
additional shares ordinarily will be disadvantageous to the shareholder because
of the duplication of sales charges. Any gain or loss realized by the
shareholder upon redemption of shares is a taxable event. The Fund reserves the
right to amend or terminate the systematic withdrawal program upon 30 days'
notice to its shareholders.
EXCHANGE PRIVILEGE
All shareholders are limited to eight exchanges per fund during a rolling
365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight exchanges out of that fund are made by the shareholder during a rolling
365-day period. If exchange privileges are suspended, subsequent exchange
requests during the stated period will not be processed. Exchange privileges
will be restored when the account history shows fewer than eight exchanges in
the rolling 365-day period.
This policy does not apply to money market funds, systematic exchange plans
or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A Shareholder or Class B Shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption
(and may include that amount necessary to acquire a fractional share to round
off his or her purchase to the next full share) in Class A Shares of the Fund. A
Class C Shareholder who has redeemed shares of the Fund may reinstate any
portion or all of the net proceeds of such redemption (and may include that
amount necessary to acquire a fractional share to round off his or her purchase
to the next full share) in Class C Shares of the Fund with credit given for any
contingent deferred sales charge paid upon such redemption, provided that such
shareholder has not previously exercised this reinvestment privilege with
respect to Class C Shares of the Fund. Shares acquired in this manner will be
deemed to have the original cost and purchase date of the redeemed shares for
purposes of applying the CDSC-Class C (defined below) to subsequent redemptions.
Such reinstatement is made at the net asset value per share (without sales
charge) next determined after the order is received, which must be made within
180 days after the date of the redemption provided that shares of the Fund are
available for sale. Reinstatement at net asset value per share is also offered
to participants in those eligible retirement plans held or administered by Van
Kampen Trust Company for repayment of principal (and interest) on their
borrowings on such plans provided that shares of the Fund are available for
sale.
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<PAGE> 66
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
In addition, if the Fund's Board of Trustees determines that payment wholly
or partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. A
distribution-in-kind may result in recognition by the shareholder of a gain or
loss for federal income tax purposes when such securities are distributed, and
the shareholder may have brokerage charges and a gain or loss for federal income
tax purposes upon the shareholder's disposition of such securities.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a contingent deferred sales
charge ("CDSC-Class A") may be imposed on certain redemptions made within one
year of purchase. For purposes of the CDSC-Class A, when shares of one fund are
exchanged for shares of another fund, the purchase date for the shares of the
fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC-Class A rather than a front-end load sales charge. In determining whether
a CDSC-Class A is payable, it is assumed that shares being redeemed first are
any shares in the shareholder's account not subject to a contingent deferred
sales charge followed by shares held the longest in the shareholder's account.
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.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGES
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge ("CDSC-Class B and C"). The CDSC-Class B and C is waived on redemptions
of Class B Shares and Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is
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<PAGE> 67
the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the death or initial determination of
disability. This waiver of the CDSC-Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The CDSC-Class B and C will be waived upon the tax-free rollover or
transfer of assets to another retirement plan invested in one or more
Participating Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held on to the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC-Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution or other
contribution pursuant to Code Section 408(d)(4) or (5), the return of excess
contributions or excess deferral amounts pursuant to Code Section 401(k)(8) or
402(g)(2), the financial hardship of the employee pursuant to U.S. Treasury
Regulation Section 1.401(k)-1(d)(2) or from the death or disability of the
employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the
charge will be waived on any minimum distribution required to be distributed in
accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the systematic
withdrawal plan, a dollar amount of a participating shareholder's investment in
the Fund will be redeemed systematically by the Fund on a periodic basis, and
the proceeds sent to the designated payee of record. The amount to be redeemed
and frequency of the systematic withdrawals will be specified by the shareholder
upon his or her election to participate in the systematic withdrawal plan. The
CDSC-Class B and C will be waived on redemptions made under the systematic
withdrawal plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the systematic withdrawal plan is made with respect
to the Fund is hereinafter referred to as the "initial account balance." The
amount to be systematically redeemed from the Fund without the imposition of a
CDSC-Class B and C may not exceed a maximum of 12% annually of the shareholder's
initial account balance. The Fund reserves the right to change the terms and
conditions of the systematic withdrawal plan and the ability to offer the
systematic withdrawal plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" in the Prospectus.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the value of the
account up to the required minimum balance. The Fund will waive the CDSC-Class B
and C upon such involuntary redemption.
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<PAGE> 68
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION OF THE FUND
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its investment company taxable income (generally including ordinary
income and net short-term capital gain, but not net capital gain, which is the
excess of net long-term capital gain over net short-term capital loss), and
meets certain other requirements, it will not be required to pay federal income
taxes on any income it distributes to shareholders. The Fund intends to
distribute at least the minimum amount of investment company taxable income
necessary to satisfy the 90% distribution requirement. The Fund will not be
subject to federal income tax on any net capital gain distributed to
shareholders.
To avoid a 4% excise tax, the Fund will be required to distribute, by
December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. In addition, the Fund
could be required to recognize unrealized gains, pay taxes and interest charges
and make distributions before requalifying for taxation as a regulated
investment company.
Some of the Fund's investment practices are subject to special provisions
of the Code that may, among other things, (i) disallow, suspend or otherwise
limit the allowance of certain losses or deductions, (ii) convert lower taxed
long-term capital gain into higher taxed short-term capital gain or ordinary
income, (iii) convert an ordinary loss or a deduction into a capital loss (the
deductibility of which is more limited) and/or (iv) cause the Fund to recognize
income or gain without a corresponding receipt of cash with which to make
distributions in amounts necessary to satisfy the 90% distribution requirement
and the distribution requirements for avoiding income and excise taxes. The Fund
will monitor its transactions and may make certain tax elections to mitigate the
effect of these rules and prevent disqualification of the Fund as a regulated
investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year to maintain its qualification as a
regulated investment company and to avoid income and excise taxes. To generate
sufficient cash to make distributions necessary to satisfy the 90% distribution
requirement and to avoid income and excise taxes, the Fund may have to dispose
of securities that it would otherwise have continued to hold.
B-33
<PAGE> 69
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of the Fund's investment company taxable income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains regardless of the length of time shares
of the Fund have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the maximum tax rates applicable to capital
gains (including capital gain dividends), see "Capital Gains Rates" below.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund generally will not be eligible for the corporate dividends received
deduction.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) may be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
sold and the amount received. If the shares sold are held as a capital asset,
the gain or loss will be a capital gain or loss. For a summary of the maximum
tax rates applicable to capital gains (including capital gain dividends) see
"Capital Gains Rates" below. Any loss recognized upon a taxable disposition of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends received with respect to such
shares. For purposes of determining whether shares have been held for six months
or less, the holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
B-34
<PAGE> 70
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers investing in the Fund is (i) the
same as the maximum ordinary income tax rate for capital assets held for one
year or less or (ii) 20% for capital assets held for more than one year. The
maximum long-term capital gains rate for corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to U.S. federal income taxation regardless of its source or (iv) a trust
whose administration is subject to the primary supervision of a U.S. court and
which has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust (a "Non-U.S. Shareholder") generally will be
subject to withholding of U.S. federal income tax at a 30% rate (or lower
applicable treaty rate) on dividends from the Fund (other than capital gain
dividends) that are not "effectively connected" with a U.S. trade or business
carried on by such shareholder. Accordingly, investment in the Fund is likely to
be appropriate for a Non-U.S. Shareholder only if such person can utilize a
foreign tax credit or corresponding tax benefit in respect of such U.S.
withholding tax.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to U.S. federal income tax in the case of
(i) a Non-U.S. Shareholder that is a corporation and (ii) an individual Non-U.S.
Shareholder who is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares are
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to U.S. federal income tax on a net
basis at the tax rates applicable to U.S. citizens or domestic corporations.
Non-U.S. Shareholders that are corporations may also be subject to an additional
"branch profits tax" with respect to income from the Fund that is effectively
connected with a United States trade or business.
United States Treasury Regulations, generally effective for payments made
after December 31, 2000, modify the withholding, backup withholding and
information reporting rules, including the procedures to be followed by foreign
investors in establishing foreign status. Shareholders and prospective foreign
investors should consult their tax advisers concerning the applicability and
effect of such Treasury Regulations on an investment in shares of the Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to properly furnish the Fund with its correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Fund that the shareholder has failed to properly report certain interest and
dividend income to the IRS and to respond to notices to that effect or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Redemption proceeds may be subject to withholding
under the circumstances described in (i) above.
B-35
<PAGE> 71
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's U.S. federal income tax liability, if any,
provided that the required information is furnished to the IRS.
INFORMATION REPORTING
The Fund must report annually to the IRS and to each shareholder (other
than a Non-U.S. Shareholder) the amount of dividends paid to such shareholder
and the amount, if any, of tax withheld pursuant to backup withholding rules
with respect to such dividends. In the case of a Non-U.S. Shareholder, the Fund
must report to the IRS and such shareholder the aggregate amount of dividends
paid that are subject to backup withholding (if any) and the amount of tax
withheld with respect to such dividends pursuant to the backup withholding
rules. This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence. Generally, dividends paid to
Non-U.S. Shareholders that are subject to the 30% federal income tax withholding
described above under "Non-U.S. Shareholders" are not subject to backup
withholding.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors and shareholders should consult their
advisers regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes the maximum sales charge for Class A Shares);
that all income dividends or capital gain dividends during the period are
reinvested in Fund shares at net asset value; and that any applicable contingent
deferred sales charge has been paid. The Fund's total return will vary depending
on market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Since Class A Shares of the Fund were offered at a maximum sales charge of 6.75%
prior to June 12, 1989, actual Fund total return would have been somewhat less
than that computed on the basis of the current maximum sales charge. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate future performance. No adjustments are made to reflect any
income taxes payable by shareholders on dividends or capital gain dividends paid
by the Fund or to reflect the fact no 12b-1 fees were incurred prior to October
1, 1989.
Average annual total return quotations are computed by finding the average
annual compounded rate of return over the period that would equate the initial
amount invested to the ending redeemable value.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares.
B-36
<PAGE> 72
Non-standardized total return calculations do not reflect the imposition of
a contingent deferred sales charge, and if any contingent deferred sales charge
imposed at the time of redemption were reflected, it would reduce the
performance quoted.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares of the Fund. Total return figures for Class A Shares
include the maximum sales charge. Total return figures for Class B Shares and
Class C Shares include any applicable contingent deferred sales charge. Because
of the differences in sales charges and distribution fees, the total returns for
each class of shares will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
From time to time marketing materials may provide a portfolio manager
update, an Adviser update and discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top sector holdings and largest holdings. Materials may also
mention how the Distributor believes the Fund compares relative to other Van
Kampen funds. Materials may also discuss the Dalbar Financial Services study
from 1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten-year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of whether shareholders
purchased their fund shares in direct or sales force distribution channels. The
study showed that investors working with a professional representative have
tended over time to earn higher returns than those who invested directly. The
performance of the Funds purchased by the investors in the Dalbar study and the
conclusions based there on are not necessarily indicative of future performance
of such funds or conclusions that may result from similar studies in the future.
The Fund may also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the
B-37
<PAGE> 73
performance of mutual funds with the Consumer Price Index, Salomon Brothers
Corporate Bond Index, Shearson Lehman Corporate Bond Index, Merrill Lynch
Corporate Master Index, Merrill Lynch Corporate and Government Index, Bloomberg
Financial Markets Indices, other appropriate indices of investment securities,
or with investment or savings vehicles. The performance information may also
include evaluations of the Fund published by nationally recognized ranking or
rating services and by nationally recognized financial publications. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. For these purposes, the performance of the
Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce the Fund's
performance. The Fund will include performance data for each class of shares of
the Fund in any advertisement or information including performance data of the
Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the cover of this Statement of Additional Information.
CLASS A SHARES
The Fund's average annual total return assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
August 31, 2000 was -1.75%, (ii) the five-year period ended August 31, 2000 was
6.08% and (iii) the ten-year period ended August 31, 2000 was 9.78%.
The Fund's cumulative non-standardized total return, including payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to August 31, 2000 was 492.17%.
The Fund's cumulative non-standardized total return, excluding payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to August 31, 2000 was 521.90%.
CLASS B SHARES
The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class B Shares of the Fund for (i) the one-year
period ended August 31, 2000 was -1.27%, (ii) the five-year period ended August
31, 2000 was 6.10% and (iii) the approximately eight-year, one-month period
since July 2, 1992, the commencement of distribution for Class B Shares of the
Fund, through August 31, 2000 was 7.52%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class B Shares from
July 2, 1992 (the commencement of distribution of Class B Shares) to August 31,
2000 was 80.82%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class B Shares from
July 2, 1992 (the commencement of distribution of Class B Shares) to August 31,
2000 was 80.82%.
B-38
<PAGE> 74
CLASS C SHARES
The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class C Shares of the Fund for (i) the one-year
period ended August 31, 2000 was 1.53%, (ii) the five-year period ended August
31, 2000 was 6.29% and (iii) the approximately seven-year, one-month period
since July 6, 1993, the commencement of distribution for Class C Shares of the
Fund, through August 31, 2000 was 6.10%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class C Shares from
July 6, 1993 (the commencement of distribution for Class C Shares) to August 31,
2000 was 52.69%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class C Shares from
July 6, 1993 (the commencement of distribution for Class C Shares) to August 31,
2000 was 52.69%.
The annualized current yield for Class A Shares, Class B Shares and Class C
Shares of the Fund for the 30-day period ending August 31, 2000 was 10.56%,
10.27% and 10.33%, respectively. The yield for Class A Shares, Class B Shares
and Class C Shares is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
These results are based on historical earnings and asset value fluctuations
and are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objectives and policies as well as
the risks incurred in the Fund's investment practices.
OTHER INFORMATION
CUSTODY OF ASSETS
Except for segregated assets held by a futures commission merchant pursuant
to rules and regulations promulgated under the 1940 Act, all securities owned by
the Fund and all cash, including proceeds from the sale of shares of the Fund
and of securities in the Fund's investment portfolio, are held by State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110 as
custodian. The custodian also provides accounting services to the Fund.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent auditors.
INDEPENDENT AUDITORS
Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Fund's Board of Trustees has engaged Ernst & Young
LLP, located at 233 South Wacker Drive, Chicago, Illinois 60606, to be the
Fund's independent auditors.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago,
Illinois 60601 ("PWC"), ceased being the Fund's independent auditors effective
May 25, 2000. The cessation of the client-auditor relationship between the Fund
and PWC was based solely on a possible future business relationship by PWC with
an affiliate of the Fund's investment adviser. The change in independent
auditors was approved by the Fund's audit committee and the Fund's Board of
Trustees, including Trustees who are not "interested persons" of the Fund (as
defined in the 1940 Act).
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
B-39
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen High Income Corporate
Bond Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Van Kampen High Income Corporate Bond Fund (the
"Fund"), as of August 31, 2000, and the related statement of operations, changes
in net assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The statement of changes in net assets of the
Fund for the year ended August 31, 1999, and the financial highlights for each
of the four years in the period then ended were audited by other auditors whose
report dated October 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 2000, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of August 31, 2000, and the results of its operations,
changes in its net assets and its financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Chicago, Illinois
October 13, 2000
F-1
<PAGE> 76
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS 90.2%
CONSUMER DISTRIBUTION 7.1%
$4,650 Agrilink Foods, Inc. .................... 11.875% 11/01/08 $ 3,627,000
2,000 American Tissue, Inc. ................... 12.500 07/15/06 1,960,000
4,250 Big 5 Corp., Ser B....................... 10.875 11/15/07 3,888,750
1,500 Building One Services Corp. ............. 10.500 05/01/09 1,305,000
5,915 Chiquita Brands International, Inc. ..... 10.000 06/15/09 4,406,675
9,000 CHS Electronics, Inc. (f)................ 9.875 04/15/05 270,000
3,200 Community Distributors, Inc. ............ 10.250 10/15/04 2,512,000
3,250 Disco SA (Argentina)..................... 9.125 05/15/03 2,981,875
3,825 Duane Reade, Inc. ....................... 9.250 02/15/08 3,385,125
3,000 Fleming Cos., Inc. ...................... 10.500 12/01/04 2,745,000
2,000 Gruma SA (Mexico)........................ 7.625 10/15/07 1,730,000
1,200 Jitney Jungle Stores America, Inc. (f)... 12.000 03/01/06 48,000
5,500 King Pharmaceuticals, Inc. .............. 10.750 02/15/09 5,843,750
4,000 Luiginos, Inc. .......................... 10.000 02/01/06 3,180,000
1,350 Musicland Group, Inc. ................... 9.000 06/15/03 1,255,500
8,255 Musicland Group, Inc. ................... 9.875 03/15/08 6,934,200
7,250 Pantry, Inc. ............................ 10.250 10/15/07 7,123,125
5,640 Pathmark Stores, Inc. (f)................ 11.625 06/15/02 1,635,600
1,095 Pathmark Stores, Inc. (f)................ 12.625 06/15/02 317,550
6,000 Pathmark Stores, Inc. (f)................ 10.750 11/01/03 300,000
945 Phar Mor, Inc. .......................... 11.720 09/11/02 652,050
------------
56,101,200
------------
CONSUMER DURABLES 3.6%
9,710 Aetna Industries, Inc. .................. 11.875 10/01/06 8,544,800
1,725 Cambridge Industries, Inc., Ser B (f).... 10.250 07/15/07 517,500
1,000 Fonda Group, Inc., Ser B................. 9.500 03/01/07 835,000
6,000 Oxford Automotive, Inc., Ser D........... 10.125 06/15/07 5,490,000
3,850 Pillowtex Corp., Ser B................... 9.000 12/15/07 731,500
4,000 Sleepmaster LLC.......................... 11.000 05/15/09 3,760,000
6,430 Talon Automotive Group, Inc., Ser B...... 9.625 05/01/08 2,636,300
6,300 Webb (Del E.) Corp. ..................... 10.250 02/15/10 6,048,000
------------
28,563,100
------------
CONSUMER NON-DURABLES 4.6%
575 Anvil Knitwear, Inc. .................... 10.875 03/15/07 506,000
6,000 Cluett American Corp., Ser B............. 10.125 05/15/08 4,950,000
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 77
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
$3,500 CMI Industries, Inc. .................... 9.500% 10/01/03 $ 1,750,000
8,900 Consoltex Group, Inc. (Canada)........... 11.000 10/01/03 7,164,500
4,625 Del Monte Corp. ......................... 12.250 04/15/07 4,844,687
1,750 Delta Mills Insurance, Ser B............. 9.625 09/01/07 1,596,875
1,300 French Fragrances, Inc., Ser B........... 10.375 05/15/07 1,277,250
5,000 French Fragrances, Inc., Ser D........... 10.375 05/15/07 4,912,500
4,750 Globe Manufacturing Corp. ............... 10.000 08/01/08 498,750
6,000 Outsourcing Services Group, Inc., Ser
B........................................ 10.875 03/01/06 4,830,000
3,850 Supreme International, 144A--Private
Placement (b)............................ 12.250 04/01/06 3,619,000
1,750 United Industries Corp., Ser B........... 9.875 04/01/09 796,250
------------
36,745,812
------------
CONSUMER SERVICES 18.4%
6,510 Agrosy Gaming Co. ....................... 10.750 06/01/09 6,851,775
2,225 Amazon.com, Inc. (a)..................... 0/10.000 05/01/08 1,179,250
2,800 American Plumbing & Mechanical........... 11.625 10/15/08 2,758,000
3,300 Americredit Corp. ....................... 9.250 02/01/04 3,250,500
1,900 Avis Group Holdings, Inc. ............... 11.000 05/01/09 2,080,500
9,750 Booth Creek Ski Holdings, Inc., Ser B.... 12.500 03/15/07 7,507,500
2,500 Cadmus Communications Corp. ............. 9.750 06/01/09 2,437,500
10,020 Capstar Broadcasting Partners (a)........ 12.750 02/01/09 9,418,800
6,250 Cathay International Ltd., 144A--Private
Placement (Japan) (b).................... 13.000 04/15/08 3,250,000
8,360 Charter Communications Holdings.......... 8.250 04/01/07 7,733,000
4,500 Charter Communications Holdings (a)...... 0/11.750 01/15/10 2,700,000
5,500 Citadel Broadcasting Co., Ser B.......... 10.250 07/01/07 5,761,250
1,375 Classic Cable, Inc. ..................... 9.375 08/01/09 1,079,375
4,600 Coaxial Commerce Central Ohio, Inc. ..... 10.000 08/15/06 4,531,000
1,750 Diamond Cable Co. (United Kingdom) (a)... 0/11.750 12/15/05 1,653,750
2,250 Frontiervision Holdings L.P. (a)......... 0/11.875 09/15/07 1,982,812
2,875 Frontiervision Holdings L.P., Ser B
(a)...................................... 0/11.875 09/15/07 2,533,594
1,975 Globix Corp. ............................ 12.500 02/01/10 1,520,750
2,195 Globo Communicacoes Participation,
144A--Private Placement (Brazil) (b)..... 10.625 12/05/08 1,948,062
3,745 Gray Communications Systems, Inc. ....... 10.625 10/01/06 3,759,044
6,100 Hollywood Casino Corp. .................. 11.250 05/01/07 6,366,875
3,120 Horseshoe Gaming LLC..................... 8.625 05/15/09 3,042,000
1,050 Intrawest Corp. ......................... 10.500 02/01/10 1,097,250
4,500 Isle Capri Casinos, Inc. ................ 8.750 04/15/09 4,230,000
3,150 James Cable Partners L.P. ............... 10.750 08/15/04 2,756,250
765 Majestic Star Casino LLC, Ser B.......... 10.875 07/01/06 669,375
3,425 Multicanal Participacoes, Ser B
(Brazil)................................. 12.625 06/18/04 3,493,500
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 78
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$4,500 Muzak LLC................................ 9.875% 03/15/09 $ 3,960,000
5,700 Northland Cable Television, Inc. ........ 10.250 11/15/07 4,560,000
5,500 NTL Inc., Ser B (a)...................... 0/11.500 02/01/06 5,204,375
3,000 Park N View, Inc., Ser B................. 13.000 05/15/08 930,000
1,500 Park Place Entertainment Corp. .......... 7.875 12/15/05 1,458,750
3,950 Port Arthur Finance Corp., Ser A, 144A--
Private Placement (b).................... 12.500 01/15/09 4,019,125
7,400 Premier Parks, Inc. (a).................. 0/10.000 04/01/08 5,050,500
7,000 Radio Unica Corp. (a).................... 0/11.750 08/01/06 4,865,000
1,350 Sinclair Broadcast Group, Inc. .......... 8.750 12/15/07 1,248,750
7,190 Telewest Communications PLC (United
Kingdom) (a)............................. 0/11.000 10/01/07 6,902,400
2,000 Telewest Communications PLC,
144A--Private Placement (United Kingdom)
(a) (b).................................. 0/9.250 04/15/09 1,150,000
5,000 UIH Australia/Pacific, Inc., Ser B (a)... 0/14.000 05/15/06 4,675,000
5,255 United International Holdings, Inc.
(a)...................................... 0/10.750 02/15/08 3,757,325
6,250 Young America Corp., Ser B............... 11.625 02/15/06 3,000,000
------------
146,372,937
------------
ENERGY 5.4%
7,325 Chesapeake Energy Corp. ................. 9.625 05/01/05 7,379,938
4,385 Frontier Oil Corp. ...................... 11.750 11/15/09 4,538,475
2,800 Grey Wolf Inc. .......................... 8.875 07/01/07 2,723,000
5,935 Houston Exploration Co. ................. 8.625 01/01/08 5,786,625
3,809 Hurricane Hydrocarbons Ltd., 144A--
Private Placements (Canada) (b).......... 16.000 12/31/01 3,770,725
6,250 Hydrochem Industrial Services, Inc., Ser
B........................................ 10.375 08/01/07 4,781,250
6,675 KCS Energy, Inc. (f)..................... 11.000 01/15/03 6,474,750
3,500 Pride Petroleum Services, Inc. .......... 9.375 05/01/07 3,570,000
4,500 Universal Compression, Inc. (a).......... 0/9.875 02/15/08 3,386,250
------------
42,411,013
------------
FINANCE 1.1%
4,750 Americo Life, Inc........................ 9.250 06/01/05 4,441,250
2,000 DLJ Secured Loan Trust, Class A, 144A--
Private Placement (b).................... 10.125 07/07/07 2,100,000
3,000 Madison River Capital/Madison River
Financial Ser, 144A--Private Placement
(b)...................................... 13.250 03/01/10 2,505,000
------------
9,046,250
------------
HEALTHCARE 2.0%
1,120 HCA Healthcare Co. ...................... 8.750 09/01/10 1,125,600
3,675 Iasis Healthcare Corp. .................. 13.000 10/15/09 3,766,875
3,000 Mediq, Inc. (f) ......................... 11.000 06/01/08 240,000
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 79
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
HEALTHCARE (CONTINUED)
$8,265 Oxford Health Plans, Inc. ............... 11.000% 05/15/05 $ 8,719,575
2,225 Tenet Healthcare Corp. .................. 8.000 01/15/05 2,191,625
------------
16,043,675
------------
PRODUCER MANUFACTURING 4.9%
300 Cemex International Capital, Inc. ....... 9.660 11/29/49 307,500
3,355 Compass Aerospace Corp. ................. 10.125 04/15/05 335,500
4,500 Eagle Picher Industries, Inc. ........... 9.375 03/01/08 3,757,500
4,450 Filtronic PLC (United Kingdom)........... 10.000 12/01/05 4,027,250
2,000 Flowserve Corp., 144A--Private Placement
(b)...................................... 12.250 08/15/10 2,040,000
5,255 GS Technologies Operating, Inc. ......... 12.000 09/01/04 683,150
8,000 IMO Industries, Inc. .................... 11.750 05/01/06 8,040,000
2,000 Numatics, Inc., Ser B.................... 9.625 04/01/08 1,590,000
4,500 St John Knits International Inc. ........ 12.500 07/01/09 4,275,000
3,000 Terex Corp. ............................. 8.875 04/01/08 2,760,000
4,500 Terex Corp., Ser D....................... 8.875 04/01/08 4,140,000
5,970 Venture Holdings, Inc. .................. 12.000 06/01/09 3,999,900
6,750 Waxman Industries, Inc., Ser B (f)....... 12.750 06/01/04 3,037,500
------------
38,993,300
------------
RAW MATERIALS/PROCESSING INDUSTRIES 8.7%
2,175 Acetex Corp. (Canada).................... 9.750 10/01/03 2,088,000
3,000 AEP Industries, Inc. .................... 9.875 11/15/07 2,580,000
4,200 Anchor Lamina, Inc. (Canada)............. 9.875 02/01/08 2,478,000
4,540 Aracruz Celulose SA, 144A--Private
Placement (Brazil) (b)................... 10.375 01/31/02 4,698,900
4,500 Doe Run Resources Corp., Ser B........... 11.250 03/15/05 2,475,000
3,285 Doman Industries Ltd. (Canada)........... 12.000 07/01/04 3,391,762
1,400 Georgia Gulf Corp. ...................... 10.375 11/01/07 1,459,500
1.2 units Intersil Corp. (e)....................... 13.250 08/15/09 1,276,275
1,300 ISP Holdings, Inc. ...................... 9.000 10/15/03 1,248,000
2,095 Kappa Beheer BV (Netherlands)............ 10.625 07/15/09 2,157,850
1,555 Kappa Beheer BV (Netherlands)............ 10.625 07/15/09 1,439,121
3,725 Pacifica Papers, Inc. ................... 10.000 03/15/09 3,799,500
5,054 Pioneer Americas Acquisition Corp., Ser
B........................................ 9.250 06/15/07 2,880,780
6,500 Printpack, Inc., Ser B................... 10.625 08/15/06 6,272,500
3,250 Radnor Holdings, Inc., Ser B............. 10.000 12/01/03 3,006,250
5,000 Renco Steel Holdings, Inc. .............. 10.875 02/01/05 4,025,000
2,235 Repap New Brunswick, Inc. (Canada)....... 9.000 06/01/04 2,290,875
7.3 units Republic Technologies International,
144A--Private Placement (b) (e).......... 13.750 07/15/09 1,418,625
1,417 Reunion Inds Inc. ....................... 13.000 05/01/03 1,360,320
2,250 Scovill Fasteners, Inc. ................. 11.250 11/30/07 1,057,500
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 80
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
$2,625 Tekni-Plex Inc., Ser B................... 12.750% 06/15/10 $ 2,661,094
2,250 TeleCorp PCS, Inc. ...................... 10.625 07/15/10 2,334,375
5,585 TeleCorp PCS, Inc. (a)................... 0/11.625 04/15/09 3,881,575
2,750 Vicap SA (Mexico)........................ 10.250 05/15/02 2,722,500
3,100 Vicap SA (Mexico)........................ 11.375 05/15/07 2,859,750
4,625 WHX Corp. ............................... 10.500 04/15/05 3,515,000
------------
69,378,052
------------
TECHNOLOGY 6.9%
2,800 360 Networks Inc......................... 13.000 05/01/08 2,373,844
2,660 360 Networks Inc., 144A--Private
Placement (b)............................ 13.000 05/01/08 2,586,850
1,430 Autotote Corp., 144A--Private Placement
(b)...................................... 12.500 08/15/10 1,437,150
2,750 Exodus Communications, Inc. ............. 11.375 07/15/08 2,477,933
3,930 Exodus Communications, Inc., 144A--
Private Placement (b).................... 11.625 07/15/10 3,979,125
7,500 Fairchild Semiconductor Corp. ........... 10.375 10/01/07 7,696,875
4,000 Global Crossing Holdings Ltd.
(Bermuda) ............................... 9.125 11/15/06 4,000,000
1,950 Global Telesystems Europe BV
(Luxembourg)............................. 11.000 12/01/09 1,125,223
4,300 Globenet Communications Group............ 13.000 07/15/07 4,353,750
4,100 Intermedia Communications, Inc. (a)...... 0/11.250 07/15/07 2,829,000
1,125 Intermedia Communications, Inc., Ser B
(a)...................................... 0/12.250 03/01/09 562,500
1,925 MGC Communications, Inc., Ser B.......... 13.000 10/01/04 2,059,750
1,750 PSINet, Inc. ............................ 10.500 12/01/06 1,320,528
10,225 PSINet, Inc. ............................ 10.500 12/01/06 8,793,500
7,790 Viatel, Inc. ............................ 11.500 03/15/09 4,479,250
3,100 Williams Communications Corp., 144A
Private Placement (b).................... 11.700 08/01/08 3,115,500
3,500 Winstar Communications, Inc., 144A--
Private Placement (a) (b)................ 0/14.750 04/15/10 1,382,500
------------
54,573,278
------------
TRANSPORTATION 4.2%
4,000 American Commercial Lines LLC............ 10.250 06/30/08 3,420,000
7,500 Atlas Air, Inc. ......................... 10.750 08/01/05 7,753,125
4,750 Atlas Air, Inc. ......................... 9.375 11/15/06 4,767,813
675 Atlas Air, Inc. ......................... 9.250 04/15/08 675,000
2,700 Cenargo International PLC (United
Kingdom)................................. 9.750 06/15/08 2,133,000
7,355 Greyhound Lines, Inc. ................... 11.500 04/15/07 5,295,600
1,170 MRS Logistica SA, Ser B, 144A--Private
Placement (Brazil) (b)................... 10.625 08/15/05 1,044,225
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 81
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TRANSPORTATION (CONTINUED)
$6,250 Pegasus Shipping Hellas Ltd., Ser A
(Bermuda) (f)............................ 11.875% 11/15/04 $ 2,281,250
4,500 Stena AB (Sweden)........................ 10.500 12/15/05 4,387,500
1,800 Transport World Airlines, Inc. .......... 11.500 12/15/04 1,278,000
------------
33,035,513
------------
UTILITIES 23.3%
7.3 units Airgate PCS, Inc. (a) (e)................ 0/13.500 10/01/09 4,653,750
2,000 Alamosa PCS Holdings, Inc. (a)........... 0/12.875 02/15/10 1,165,000
6,250 Centennial Cellular Operating Co. ....... 10.750 12/15/08 6,140,625
9,750 Clearnet Communications, Inc. (Canada)
(a)...................................... 0/14.750 12/15/05 10,237,500
2,000 Compania De Transporte Energia, 144A--
Private Placement (Argentina) (b)........ 9.250 04/01/08 1,847,500
3,100 Crown Castle International Corp. (a)..... 0/10.625 11/15/07 2,418,000
2,800 Crown Castle International Corp. ........ 10.750 08/01/11 2,922,500
5,500 CTI Holdings SA (Argentina) (a).......... 0/11.500 04/15/08 3,025,000
2,625 Dobson Communications Corp., 144A--
Private Placement (b).................... 10.875 07/01/10 2,615,156
8,040 E. Spire Communications, Inc. (a)........ 0/13.000 11/01/05 4,180,800
5,305 GST Network Funding, Inc. (a) (f)........ 0/10.500 05/01/08 2,732,075
568 GST Telecommunications, Inc., 144A--
Private Placement (Canada) (a) (b) (f)... 0/13.875 12/15/05 11,360
12,010 GT Group Telecom, Inc., 144A--Private
Placement (Canada) (a) (b)............... 0/13.250 02/01/10 6,275,225
9,675 ICG Holdings, Inc. (a)................... 0/13.500 09/15/05 5,418,000
2,500 ICG Holdings, Inc. (a)................... 0/12.500 05/01/06 1,275,000
6,515 Intermedia Communications of Florida,
Inc. (a)................................. 0/12.500 05/15/06 5,765,775
3,150 IPCS, Inc. (a)........................... 0/14.000 07/15/10 1,811,250
3,400 Jazztel PLC (United Kingdom)............. 13.250 12/15/09 2,550,506
3,450 Jazztel PLC (United Kingdom)............. 14.000 07/15/10 2,894,288
8,300 KMC Telecommunications Holdings, Inc.
(a)...................................... 0/12.500 02/15/08 3,154,000
4,900 Level 3 Communications Inc. (a).......... 0/12.875 03/15/10 2,768,500
2,235 Metromedia Fiber Network, Inc. .......... 10.000 12/15/09 2,184,713
10,210 Microcell Telecommunications, Ser B
(a)...................................... 0/14.000 06/01/06 9,801,600
9,000 Millicom International Cellular SA
(Luxemburg) (a).......................... 0/13.500 06/01/06 8,010,000
2,030 Netia Holdings, Inc. (Netherlands)....... 13.750 06/15/10 1,844,934
2,950 Netia Holdings, Inc., Ser B
(Netherlands)............................ 10.250 11/01/07 2,492,750
5,065 Netia Holdings, Inc., Ser B (Netherlands)
(a)...................................... 0/11.250 11/01/07 3,596,150
3,750 Nextel Communications, Inc. (a).......... 0/9.750 10/31/07 2,878,125
1,000 Nextel Communications, Inc. ............. 12.000 11/01/08 1,082,500
3,270 Nextel Communications, Inc. ............. 9.375 11/15/09 3,204,600
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 82
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$4,420 Nextlink Communications, Inc. ........... 10.500% 12/01/09 $ 4,221,100
2,865 Nextlink Communications, Inc. (a)........ 0/12.125 12/01/09 1,590,075
4,500 NTL, Inc. (a)............................ 0/9.750 04/01/08 2,868,750
3,500 PF Net Communications, Inc., 144A--
Private Placement (b).................... 13.750 05/15/10 3,482,500
1,175 Philippine Long Distance Telephone
(Philippines)............................ 10.500 04/15/09 1,094,160
10,574 Pinnacle Holdings, Inc. (a).............. 0/10.000 03/15/08 7,692,585
4,450 Price Communications Wireless............ 11.750 07/15/07 4,806,000
6,400 Primus Telecommunications Group.......... 11.750 08/01/04 4,224,000
830 Primus Telecommunications Group.......... 11.250 01/15/09 531,200
3,750 Rural Cellular Corp. .................... 9.625 05/15/08 3,609,375
2,250 Satelites Mexicanos SA (Mexico).......... 10.125 11/01/04 1,485,000
8,250 SBA Communications Corp. (a)............. 0/12.000 03/01/08 6,249,375
8,100 Startec Global Communications............ 12.000 05/15/08 6,520,500
6,690 Triton Communications LLC (a)............ 0/11.000 05/01/08 5,084,400
6,345 United Pan-Europe Communication NV, Ser B
(Netherlands) (a)........................ 0/12.500 08/01/09 3,093,187
3,500 United Pan-Europe Communication NV, Ser B
(Netherlands)............................ 10.875 08/01/09 2,992,500
1,060 United Pan-Europe Communication NV, Ser B
(Netherlands)............................ 11.250 02/01/10 935,450
1,350 United Pan-Europe Communication NV, Ser B
(Netherlands) (a)........................ 0/13.750 02/01/10 627,750
3,945 US Unwired Inc., Ser B (a)............... 0/13.375 11/01/09 2,219,063
1,460 Verio, Inc. ............................. 13.500 06/15/04 1,715,500
4,015 Verio, Inc. ............................. 10.375 04/01/05 4,416,500
5,800 Worldwide Fiber, Inc. ................... 12.000 08/01/09 5,365,000
------------
183,781,152
------------
TOTAL CORPORATE BONDS 90.2%................................................ 715,045,282
------------
FOREIGN GOVERNMENT OBLIGATIONS 1.0%
1,540 Republic of Brazil (Brazil).............. 10.125 05/15/27 1,243,165
1,500 Republic of Colombia (Colombia).......... 9.750 04/23/09 1,365,000
2,750 Republic of Germany (Germany)............ 3.250 09/15/00 2,440,093
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 83
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (CONTINUED)
$125 United Mexican States Debt (Mexico)...... 9.875% 02/01/10 $ 134,656
2,000 United Mexican States Debt (Mexico)...... 11.500 05/15/26 2,486,500
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS 1.0%.................................. 7,669,414
------------
EQUITIES 2.9%
Airgate PCS, Inc. (4,906 Common Shares) (c)................................. 333,915
Anvil Holdings, Inc. (165,908 Preferred Shares, 13.00% coupon, $1,000 par
per share) (c) (d)........................................................ 2,654,528
AT + T Canada Inc. (31,718 ADR Common shares) (Canada) (c).................. 1,052,641
Contour Energy Co. (75,000 Common Shares) (c)............................... 194,531
Crown Castle International Corp. (3,934 Preferred Shares, 12.75% coupon,
$1,000 par per share) (c) (d)............................................. 3,973,884
Dairy Mart Convenience Stores (14,998 Common Stock Warrants) (c)............ 12,748
Day International Group, Inc. (1,965 Preferred Shares, 12.25% coupon, $1,000
par per share) (c) (d).................................................... 1,503,225
DecisionOne Corp. (14,612 Common Stock Warrants Class B) (c)................ 13,803
DecisionOne Corp. (14,661 Common Shares) (c)................................ 9,750
DecisionOne Corp. (8,219 Common Stock Warrants Class A) (c)................. 8,010
DecisionOne Corp. (8,400 Common Stock Warrants Class C) (c)................. 8,187
Firstworld Communications, Inc. 144A--Private Placement (1,255 Common Stock
Warrants), (b) (c)........................................................ 24,500
HF Holdings, Inc. (36,820 Common Stock Warrants) (c)........................ 40,502
Intermedia Communications, Inc. (16,500 Common Shares) (c).................. 342,375
Intersil Holding Corp., 144A--Private Placement (1,700 Common Stock
Warrants) (b) (c)......................................................... 1,560,600
KMC Telecommunications Holdings, Inc., 144A--Private Placement (9,555 Common
Stock Warrants) (b) (c)................................................... 668,850
McLoedUSA, Inc. (59,106 Common Shares) (c).................................. 934,614
NTL, Inc. (6,889 Common Stock Warrants) (c)................................. 319,133
Optel, Inc. (3,275 Common Shares) (c)....................................... 3,275
Park N View, Inc., 144A--Private Placement (3,000 Common Stock Warrants) (b)
(c)....................................................................... 750
PF Net Communications, Inc., 144A--Private Placement (3,500 Common Stock
Warrants) (b) (c)......................................................... 35
Price Communications Corp. (55,114 Common Shares) (c)....................... 1,129,837
Primus Telecommunications Group (2,000 Common Stock Warrants) (c)........... 31,500
Republic Technologies International, Inc., 144A--Private Placement (7,275
Common Stock Warrants) (b) (c)............................................ 73
Rural Cellular Corp. (7,882 Preferred Shares, 11.375% coupon, $1,000 par per
share) (c) (d)............................................................ 7,331,165
Signature Brands, Inc. (4,000 Common Stock Warrants) (c).................... 86,000
Star Gas Partners, L.P. (1,219 Units of Limited Partnership Interests)...... 20,875
</TABLE>
See Notes to Financial Statements
F-9
<PAGE> 84
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
EQUITIES (CONTINUED)
Startec Global Communications $(8,100 Common Stock Warrants) (c)............ $ 32,400
Superior National Capital Trust 1 (22,500 Preferred Shares, 10.75% coupon,
$1,000 par per share) (c) (d)............................................. 157,500
Terex Corp. (28,000 Common Stock Rights) (c)................................ 504,000
Total Renal Care Holdings, Inc. (10,000 Common Shares) (c).................. 70,000
UIH Australia Pacific, Inc. (5,000 Common Stock Warrants) (c)............... 130,000
Wright Medical Technology, Inc. (4,118 Common Stock Warrants) (c)........... 41,176
------------
TOTAL EQUITIES 2.9%........................................................ 23,194,382
------------
TOTAL LONG-TERM INVESTMENTS 94.1%
(Cost $879,637,922)..................................................... 745,909,078
SHORT-TERM INVESTMENTS 4.0%
BA Securities ($31,775,000 par collateralized by U.S. Government Obligations
in a pooled cash account, dated 08/31/00, to be sold on 09/01/00 at
$31,780,843) (Cost $31,775,000)........................................... 31,775,000
------------
TOTAL INVESTMENTS 98.1%
(Cost $911,412,922)....................................................... 777,684,078
OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%................................. 15,348,129
------------
NET ASSETS 100.0%.......................................................... $793,032,207
============
</TABLE>
(a) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally
transactions with qualified institutional buyers.
(c) Non-income producing security.
(d) Payment-in-kind security.
(e) One unit represents one million par of senior notes and one warrant.
(f) Non-income producing as this bond is currently in default.
See Notes to Financial Statements
F-10
<PAGE> 85
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $911,412,922)....................... $777,684,078
Receivables:
Interest.................................................. 19,831,918
Fund Shares Sold.......................................... 1,971,098
Dividends................................................. 124,882
Other....................................................... 68,753
------------
Total Assets............................................ 799,680,729
------------
LIABILITIES:
Payables:
Income Distributions...................................... 3,004,954
Fund Shares Repurchased................................... 1,940,707
Distributor and Affiliates................................ 436,015
Investment Advisory Fee................................... 357,505
Custodian Bank............................................ 276,978
Investments Purchased..................................... 124,882
Accrued Expenses............................................ 266,040
Trustees' Deferred Compensation and Retirement Plans........ 241,441
------------
Total Liabilities....................................... 6,648,522
------------
NET ASSETS.................................................. $793,032,207
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $990,602,448
Accumulated Undistributed Net Investment Income............. 138,274
Accumulated Net Realized Loss............................... (63,953,200)
Net Unrealized Depreciation................................. (133,755,315)
------------
NET ASSETS.................................................. $793,032,207
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $464,982,437 and 88,671,103 shares of
beneficial interest issued and outstanding)............. $ 5.24
Maximum sales charge (4.75%* of offering price)......... .26
------------
Maximum offering price to public........................ $ 5.50
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $268,673,760, and 51,146,923 shares of
beneficial interest issued and outstanding)............. $ 5.25
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $59,376,010 and 11,372,239 shares of
beneficial interest issued and outstanding)............. $ 5.22
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
F-11
<PAGE> 86
Statement of Operations
For the Year Ended August 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 95,823,798
Dividends................................................... 1,444,696
Other....................................................... 1,899,344
-------------
Total Income............................................ 99,167,838
-------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $1,153,785, $2,891,115 and $616,972,
respectively)............................................. 4,661,872
Investment Advisory Fee..................................... 4,421,601
Shareholder Services........................................ 1,384,343
Custody..................................................... 102,035
Trustees' Fees and Related Expenses......................... 81,999
Legal....................................................... 49,840
Other....................................................... 505,662
-------------
Total Expenses.......................................... 11,207,352
Less Credits Earned on Cash Balances.................... 21,670
-------------
Net Expenses............................................ 11,185,682
-------------
NET INVESTMENT INCOME....................................... $ 87,982,156
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (22,759,731)
Foreign Currency Transactions............................. (45,535)
-------------
Net Realized Loss......................................... (22,805,266)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (91,388,777)
-------------
End of the Period:
Investments............................................. (133,728,844)
Foreign Currency Translation............................ (26,471)
-------------
(133,755,315)
-------------
Net Unrealized Depreciation During the Period............... (42,366,538)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (65,171,804)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 22,810,352
=============
</TABLE>
See Notes to Financial Statements
F-12
<PAGE> 87
Statement of Changes in Net Assets
For the Years Ended August 31, 2000, and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 87,982,156 $ 92,687,034
Net Realized Loss..................................... (22,805,266) (26,018,022)
Net Unrealized Depreciation During the Period......... (42,366,538) (27,887,022)
------------- -------------
Change in Net Assets from Operations.................. 22,810,352 38,781,990
------------- -------------
Distributions from Net Investment Income:
Class A Shares...................................... (52,483,280) (56,432,461)
Class B Shares...................................... (29,126,910) (31,245,715)
Class C Shares...................................... (6,247,936) (6,424,163)
------------- -------------
Total Distributions................................. (87,858,126) (94,102,339)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (65,047,774) (55,320,349)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 256,212,226 377,609,982
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 49,156,292 50,110,723
Cost of Shares Repurchased............................ (325,168,979) (332,658,016)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (19,800,461) 95,062,689
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (84,848,235) 39,742,340
NET ASSETS:
Beginning of the Period............................... 877,880,442 838,138,102
------------- -------------
End of the Period (Including accumulated undistributed
net investment income of $138,274 and $944,173,
respectively)....................................... $ 793,032,207 $ 877,880,442
============= =============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE> 88
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS A SHARES ----------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 5.68 $ 6.06 $ 6.55 $ 6.30 $ 6.15
------ ------ ------ ------ ------
Net Investment Income.............. .59 .63 .61 .60 .61
Net Realized and Unrealized
Gain/Loss........................ (.43) (.37) (.48) .27 .14
------ ------ ------ ------ ------
Total from Investment Operations..... .16 .26 .13 .87 .75
Less Distributions from Net
Investment Income.................. .60 .64 .62 .62 .60
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $ 5.24 $ 5.68 $ 6.06 $ 6.55 $ 6.30
====== ====== ====== ====== ======
Total Return (a)..................... 3.09% 4.41% 1.66% 14.44% 12.66%
Net Assets at End of the Period (In
millions).......................... $465.0 $492.4 $499.3 $468.6 $421.4
Ratio of Expenses to Average Net
Assets (b)......................... 1.03% 1.03% 1.00% 1.08% 1.08%
Ratio of Net Investment Income to
Average Net Assets (b)............. 10.90% 10.65% 9.33% 9.37% 9.65%
Portfolio Turnover................... 68% 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(b) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-14
<PAGE> 89
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS B SHARES ----------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD.............................. $ 5.68 $ 6.06 $ 6.56 $ 6.31 $ 6.16
------ ------ ------ ------ ------
Net Investment Income............... .55 .58 .57 .56 .56
Net Realized and Unrealized
Gain/Loss......................... (.43) (.37) (.49) .26 .14
------ ------ ------ ------ ------
Total from Investment Operations...... .12 .21 .08 .82 .70
Less Distributions from Net Investment
Income.............................. .55 .59 .58 .57 .55
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.... $ 5.25 $ 5.68 $ 6.06 $ 6.56 $ 6.31
====== ====== ====== ====== ======
Total Return (a)...................... 2.43% 3.57% 0.77% 13.58% 11.78%
Net Assets at End of the Period (In
millions)........................... $268.7 $318.2 $283.1 $198.0 $114.6
Ratio of Expenses to Average Net
Assets (b).......................... 1.78% 1.79% 1.79% 1.86% 1.87%
Ratio of Net Investment Income to
Average Net Assets (b).............. 10.15% 9.88% 8.52% 8.60% 8.86%
Portfolio Turnover.................... 68% 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within the first and second year of
purchase and declining thereafter to 0% after the fifth year. If the sales
charge was included, total returns would be lower.
(b) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-15
<PAGE> 90
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS C SHARES --------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD.............................. $ 5.65 $6.04 $6.53 $ 6.28 $ 6.14
------ ----- ----- ------ ------
Net Investment Income............... .55 .58 .57 .56 .55
Net Realized and Unrealized
Gain/Loss......................... (.43) (.38) (.49) .26 .14
------ ----- ----- ------ ------
Total from Investment Operations...... .12 .20 .08 .82 .69
Less Distributions from Net Investment
Income.............................. .55 .59 .57 .57 .55
------ ----- ----- ------ ------
NET ASSET VALUE, END OF THE PERIOD.... $ 5.22 $5.65 $6.04 $ 6.53 $ 6.28
====== ===== ===== ====== ======
Total Return (a)...................... 2.45% 3.42% 0.93% 13.64% 11.66%
Net Assets at End of the Period (In
millions)........................... $ 59.4 $67.3 $55.8 $ 30.8 $ 17.5
Ratio of Expenses to Average Net
Assets (b).......................... 1.78% 1.79% 1.79% 1.86% 1.87%
Ratio of Net Investment Income to
Average Net Assets (b).............. 10.15% 9.87% 8.49% 8.57% 8.86%
Portfolio Turnover.................... 68% 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(b) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-16
<PAGE> 91
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Corporate Bond Fund (the "Fund"), a Delaware business
trust, is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to provide maximum current income through investment in high
yielding, high risk fixed-income securities. The Fund commenced investment
operations on October 2, 1978. The Fund commenced distribution of its Class B
and Class C shares on July 2, 1992 and July 6, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Fixed income investments and preferred stock are stated at
value using market quotations or indications of value obtained from an
independent pricing service. Investments in securities listed on a securities
exchange are valued at the sale price as of the close of such securities
exchange. Unlisted securities and listed securities for which the last sales
price is not available are valued at the mean of the bid and asked prices. For
those securities where quotations or prices are not available as noted above,
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost, which approximates market
value.
Fund investments include lower-rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal and
interest payments. At the end of the period, debt securities rated below
investment grade and comparable unrated securities represented approximately 99%
of the investment portfolio.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a
F-17
<PAGE> 92
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
segregated account with its custodian, assets having an aggregate value at least
equal to the amount of the when-issued or delayed delivery purchase commitments
until payment is made. At August 31, 2000, there were no when-issued or delayed
delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates (collectively, "Van Kampen"), the daily aggregate of which is
invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Discounts on debt
securities purchased are accreted over the life of the respective security.
Premiums on debt securities are not amortized. Income and expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At August 31, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $42,452,246 which expires between August 31, 2003 and August
31, 2008. Net realized gains or losses may differ for financial reporting and
tax purposes primarily as a result of market discount from bonds sold, post
October 31 losses which are not realized for tax purposes until the first day of
the following fiscal year and the deferral of losses relating to wash sales
transactions.
At August 31, 2000, for federal income tax purposes, cost of long- and
short-term investments is $912,828,814, the aggregate gross unrealized
appreciation is $16,693,775 and the aggregate gross unrealized depreciation is
$151,838,511,
F-18
<PAGE> 93
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
resulting in net unrealized depreciation on long- and short-term investments of
$135,144,736.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included in ordinary income for
tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the August 31, 2000 fiscal year have been identified and
appropriately reclassified.
Permanent book and tax basis differences relating to the expiration of a
portion of the capital loss carryforward totaling $45,375,504 were reclassified
from net realized gain/loss to capital. Permanent book and tax basis differences
relating to the recognition of market discount on bonds sold totaling $152,712
were reclassified from net realized gain/loss to accumulated undistributed net
investment income. Additionally, permanent book and tax basis differences of
$1,027,000 related to consent fee income and net realized currency gains
totaling $55,641 were reclassified from accumulated undistributed net investment
income to accumulated net realized gain/loss.
F. EXPENSE REDUCTIONS During the year ended August 31, 2000, the Fund's custody
fee was reduced by $21,670 as a result of credits earned on overnight cash
balances.
G. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the mean of the quoted bid and ask prices of
such currencies against the U.S. dollar. Purchases and sales of portfolio
securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued.
F-19
<PAGE> 94
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $150 million.......................................... .625 of 1%
Next $150 million........................................... .550 of 1%
Over $300 million........................................... .500 of 1%
</TABLE>
For the year ended August 31, 2000, the Fund recognized expenses of
approximately $49,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended August 31, 2000, the Fund recognized expenses of
approximately $54,000 representing Van Kampen's cost of providing accounting
services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended August 31, 2000,
the Fund recognized expenses of approximately $1,038,800. Transfer agency fees
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
F-20
<PAGE> 95
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
3. CAPITAL TRANSACTIONS
At August 31, 2000, capital aggregated $681,626,644, $251,448,825 and
$57,526,979 for Class A, B and C shares, respectively. For the year ended August
31, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 26,793,420 $ 148,906,408
Class B............................................... 14,987,458 81,925,971
Class C............................................... 4,670,036 25,379,847
----------- -------------
Total Sales............................................. 46,450,914 $ 256,212,226
=========== =============
Dividend Reinvestment:
Class A............................................... 5,919,292 $ 31,780,906
Class B............................................... 2,611,973 14,226,849
Class C............................................... 581,316 3,148,537
----------- -------------
Total Dividend Reinvestment............................. 9,112,581 $ 49,156,292
=========== =============
Repurchases:
Class A............................................... (30,783,802) $(170,548,452)
Class B............................................... (22,445,680) (123,101,736)
Class C............................................... (5,783,018) (31,518,791)
----------- -------------
Total Repurchases....................................... (59,012,500) $(325,168,979)
=========== =============
</TABLE>
F-21
<PAGE> 96
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
At August 31, 1999, capital aggregated $698,093,022, $293,770,644 and
$63,914,747 for Class A, B and C shares, respectively. For the year ended August
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 32,072,403 $ 188,609,487
Class B............................................... 25,472,343 150,618,753
Class C............................................... 6,517,433 38,381,742
----------- -------------
Total Sales............................................. 64,062,179 $ 377,609,982
=========== =============
Dividend Reinvestment:
Class A............................................... 5,422,970 $ 31,977,983
Class B............................................... 2,538,917 14,977,036
Class C............................................... 538,024 3,155,704
----------- -------------
Total Dividend Reinvestment............................. 8,499,911 $ 50,110,723
=========== =============
Repurchases:
Class A............................................... (33,140,278) $(196,504,687)
Class B............................................... (18,690,883) (110,387,970)
Class C............................................... (4,391,924) (25,765,359)
----------- -------------
Total Repurchases....................................... (56,223,085) $(332,658,016)
=========== =============
</TABLE>
Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received thereon, automatically
convert to Class A Shares six years after the end of the calendar month in which
the shares were purchased. For the years ended August 31, 2000 and 1999,
3,340,979 and 11,279,092 Class B Shares converted to Class A Shares,
respectively and are shown in the above tables as sales of Class A Shares and
repurchases of Class B Shares. Class C Shares purchased before January 1, 1997,
and any dividend reinvestment plan Class C Shares received thereon,
automatically convert to Class A Shares ten years after the end of the calendar
month in which such shares were purchased. Class C Shares purchased on or after
January 1, 1997 do not possess a conversion feature. For the years ended August
31, 2000 and 1999, no Class C Shares converted to Class A Shares. Class B and C
Shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge (CDSC). The CDSC will be imposed on most
redemptions made within five years of the purchase
F-22
<PAGE> 97
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
for Class B Shares and one year of the purchase for Class C Shares as detailed
in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 4.00% 1.00%
Second..................................................... 4.00% None
Third...................................................... 3.00% None
Fourth..................................................... 2.50% None
Fifth...................................................... 1.50% None
Sixth and Thereafter....................................... None None
</TABLE>
For the year ended August 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$163,500 and CDSC on redeemed shares of approximately $1,027,900. Sales charges
do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $534,923,104 and $588,060,152,
respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.
Annual fees under the Plans of up to .25% of Class A average net assets and
1.00% each for Class B and Class C average net assets are accrued daily.
Included in these fees for the year ended August 31, 2000, are payments retained
by Van Kampen of approximately $2,470,000.
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility
F-23
<PAGE> 98
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rate percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
F-24
<PAGE> 99
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C>
(a)(1) First Amended and Restated Agreement and Declaration of
Trust (1)
(2) Second Certificate of Amendment (4)
(3) Second Amended and Restated Certificate of Designation (4)
(b) Amended and Restated Bylaws (1)
(c)(1) Specimen Class A Share Certificate(3)
(2) Specimen Class B Share Certificate(3)
(3) Specimen Class C Share Certificate(3)
(d) Investment Advisory Agreement(3)
(e)(1) Distribution and Service Agreement(3)
(2) Form of Dealer Agreement (2)
(3) Form of Broker Fully Disclosed Selling Agreement (2)
(4) Form of Bank Fully Disclosed Selling Agreement (2)
(f)(1) Form of Trustee Deferred Compensation Plan (5)
(2) Form of the Trustee Retirement Plan (5)
(g)(1) Custodian Contract(3)
(2) Transfer Agency and Service Agreement(3)
(h)(1) Data Access Services Agreement (2)
(2) Fund Accounting Agreement(3)
(i)(1) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois) (2)
(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j)(1) Consent of Ernst & Young LLP+
(2) Consent of PricewaterhouseCoopers LLP+
(k) Not applicable.
(l) Not applicable.
(m)(1) Plan of Distribution pursuant to Rule 12b-1 (2)
(2) Form of Shareholder Assistance Agreement (2)
(3) Form of Administrative Services Agreement (2)
(4) Service Plan (2)
(n) Amended Multi-Class Plan (3)
(p) Code of Ethics of the Fund, Investment Adviser and
Distributor+
(q) Power of Attorney +
(z)(1) List of Investment Companies in response to Item 27(a)+
(2) List of Officers and Directors of Van Kampen Funds Inc. in
response to Item 27(b)+
</TABLE>
-------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A, File No. 2-62115, filed
December 22, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 38 to
Registrant's Registration Statement on Form N-1A, File No. 2-62115, filed
December 26, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A, File No. 2-62115, filed
December 24, 1997.
(4) Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File No. 2-62115, filed
October 22, 1998.
(5)Incorporated herein by reference to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A, File No. 2-62115, filed
December 23, 1999.
+ Filed herewith.
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<PAGE> 100
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION.
Pursuant to Del. Code Ann. Title 12 Section 3817, a Delaware business trust
may provide in its governing instrument for the indemnification of its officers
and trustees from and against any and all claims and demands whatsoever.
Reference is made to Article 8, Section 8.4 of the Registrant's First
Amended and Restated Agreement and Declaration of Trust. Article 8; Section 8.4
of the First Amended and Restated Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office or (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds Inc. (the
"Distributor") and each of its trustees and officers and each person if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss,
C-2
<PAGE> 101
liability, claim damages or expense (including the reasonable cost of investing
or defending any alleged loss, liability, claim, damages, or expense and
reasonable counsel fees) arising by reason of any person acquiring any shares,
based upon the ground that the Registration Statement, prospectus, shareholder
reports or other information filed or made public by the Registrant (as from
time to time amended) included an untrue statement of a material fact or omitted
to state a material fact required to be stated or necessary in order to make the
statements not misleading under the 1933 Act, or any other statute or the common
law. The Registrant does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Registrant by or on behalf
of the Distributor. In no case is the indemnity of the Registrant in favor of
the Distributor or any person indemnified to be deemed to protect the
Distributor or any person against any liability to the Fund or its security
holders to which the Distributor or any person against any liability to the Fund
or its security holders to which the Distributor or such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement.
Pursuant to the agreement by which Van Kampen Investor Services Inc.
("Investor Services") is appointed transfer agent of the Fund, the Registrant
agrees to indemnify and hold Investor Services harmless against any losses,
damages, costs, charges, payments, liabilities and expenses (including
reasonable counsel fees) arising out of or attributable to:
(1) the performance of Investor Services under the agreement provided that
Investor Services acted in good faith with due diligence and without negligence
or willful misconduct.
(2) reliance by Investor Services on, or reasonable use by, Investor
Services of information, records and documents which have been prepared on
behalf of, or have been furnished by, the Fund, or the carrying out by Investor
Services of any instructions or requests of the Fund.
(3) the offer or sale of the Fund's shares in violation of any federal or
state law or regulation or ruling by any federal agency unless such violation
results from any failure by Investor Services to comply with written
instructions from the Fund that such offers or sales were not permitted under
such law, rule or regulation.
(4) the refusal of the Fund to comply with terms of the agreement, or the
Fund's lack of good faith, negligence or willful misconduct or breach of any
representation or warranty made by the Fund under the agreement provided that if
the reason for such failure is attributable to any action of the Fund's
investment adviser or distributor or any person providing accounting or legal
services to the Fund, Investor Services only will be entitled to indemnification
if such entity is otherwise entitled to the indemnification from the Fund.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Investment
Advisory Agreement," "Other Agreements" and "Trustees and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen Asset Management Inc. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of
directors and officers of the Adviser, reference is made to the Adviser's
current Form ADV (File No. 801-1669) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc. (the "Distributor")
which acts as principal underwriter for certain investment companies and
unit investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc. which is an affiliated person of the Registrant, is
the only principal underwriter for the Registrant. The name, principal
business address and positions and offices with Van Kampen Funds Inc. of
each of its officers and directors are disclosed in Exhibit (z)(2). Except
as disclosed under
C-3
<PAGE> 102
the heading, "Trustees and Officers" in Part B of this Registration
Statement, none of such persons has any position or office with Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents of the Registrant required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder to be maintained (i) by the Registrant will be maintained
at its offices, located at 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555, or at Van Kampen Investor Services Inc., 7501 Tiffany Springs
Parkway, Kansas City, Missouri 64153, or at the State Street Bank and Trust
Company, 1776 Heritage Drive, North Quincy, MA 02171; (ii) by the Adviser, will
be maintained at its offices, located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555; and (iii) by Van Kampen Funds Inc., the principal
underwriter, will be maintained at its offices located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-4
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND, certifies that it meets all of the
requirements for effectiveness of this Amendment to the Registration Statement
pursuant to Rule 485(b) under the 1933 Act and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oakbrook Terrace and State of
Illinois, on the 22nd day of December, 2000.
VAN KAMPEN
HIGH INCOME CORPORATE BOND FUND
By /s/ A. THOMAS SMITH III
-------------------------------------------
A Thomas Smith III Secretary
Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement has been signed on December 22, 2000 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* Trustee and President
-----------------------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
----------------------------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
-----------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
-----------------------------------------------------
Jerry D. Choate
/s/ LINDA HUTTON HEAGY* Trustee
-----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
-----------------------------------------------------
R. Craig Kennedy
/s/ MITCHELL M. MERIN* Trustee
-----------------------------------------------------
Mitchell M. Merin
/s/ JACK E. NELSON* Trustee
-----------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
-----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
-----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
-----------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
-----------------------------------------------------
Suzanne H. Woolsey
</TABLE>
---------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III December 22, 2000
--------------------------------------
A. Thomas Smith III
Attorney-in-Fact
<PAGE> 104
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 44 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<S> <C>
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(j)(1) Consent of Ernst & Young LLP
(2) Consent of PricewaterhouseCoopers LLP
Code of Ethics of the Fund, Investment Adviser and
(p) Distributor
(q) Power of Attorney
(z)(1) List of Investment Companies in response to Item 27(a)
List of Officers and Directors of Van Kampen Funds Inc. in
(z)(2) response to Item 27(b)
</TABLE>
