<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998.
REGISTRATION NOS. 2-12685
811-734
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 79 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 27 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, IL 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, IL 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, IL 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 April 30, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR VALUE
$0.01 PER SHARE.
================================================================================
- --------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
PROSPECTUS CAPTION
FORM N-1A ITEM ------------------
<C> <S> <C>
PART A
1. Cover Page......................................... Cover Page
2. Synopsis........................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses and
Example
3. Condensed Financial Information.................... Financial Highlights
4. General Description of Registrant.................. The Fund; Investment Objective and Policies;
Risks of Medium and Lower-Rated Securities;
Investment Practices; Description of
Shares of the Fund
5. Management of the Fund............................. Annual Fund Operating Expenses and Example;
The Fund; Investment Practices; Investment
Advisory Services; Inside Back Cover
6. Capital Stock and Other Securities................. The Fund; Alternative Sales Arrangements;
Purchase of Shares; Shareholder Services;
Distribution and Service Plans; Redemption
of Shares; Distributions from the Fund;
Tax Status; Description of Shares of the
Fund; Additional Information; Inside Back
Cover
7. Purchase of Securities Being Offered............... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services; Distribution
and Service Plans
8. Redemption or Repurchase........................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.......................... Inapplicable
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL INFORMATION CAPTION
PART B -------------------------------------------
<C> <S> <C>
10. Cover Page......................................... Cover Page
11. Table of Contents.................................. Table of Contents
12. General Information and History.................... General Information
13. Investment Objectives and Policies................. Risk Factors; Convertible Securities;
Repurchase Agreements; Options, Futures
Contracts and Related Options; Investment
Restrictions; Portfolio Turnover
14. Management of the Fund............................. General Information; Trustees and Officers;
Investment Advisory Agreement
15. Control Persons and Principal
Holders of Securities............................ General Information; Trustees and Officers
16. Investment Advisory and Other
Services......................................... General Information; Trustees and Officers;
Investment Advisory Agreement;
Distributor; Distribution and Service
Plans; Transfer Agent; Portfolio
Transactions and Brokerage; Other
Information
17. Brokerage Allocation and Other Practices........... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................. Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing
of Securities Being Offered...................... Determination of Net Asset Value; Purchase
and Redemption of Shares; Exchange Privilege
20. Tax Status......................................... Tax Status of the Fund
21. Underwriters....................................... Distributor
22. Calculation of Performance Data.................... Fund Performance
23. Financial Statements............................... Report of Independent Accountants; Financial
Statements; Notes to Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
HARBOR FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Harbor Fund (the "Fund") is a diversified,
open-end management investment company, commonly known as a mutual fund. The
Fund's investment objective is to seek to provide current income, capital
appreciation, and conservation of capital. The Fund seeks to achieve its
investment objective by investing principally in debt securities, primarily
convertible bonds, and convertible preferred stocks. There is no assurance that
the Fund will achieve its investment objective.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. (the "Adviser"). This Prospectus sets forth certain information
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated April 30, 1998, containing
additional information about the Fund is hereby incorporated in its entirety
into this Prospectus. A copy of the Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related materials at the SEC's internet web site
(http://www.sec.gov).
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED APRIL 30, 1998.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 5
Annual Fund Operating Expenses and Example.................. 6
Financial Highlights........................................ 8
The Fund.................................................... 10
Investment Objective and Policies........................... 10
Risks of Medium and Lower-Rated Securities.................. 13
Investment Practices........................................ 15
Investment Advisory Services................................ 19
Alternative Sales Arrangements.............................. 21
Purchase of Shares.......................................... 24
Shareholder Services........................................ 34
Redemption of Shares........................................ 38
Distribution and Service Plans.............................. 41
Distributions from the Fund................................. 44
Tax Status.................................................. 44
Fund Performance............................................ 49
Description of Shares of the Fund........................... 51
Additional Information...................................... 52
Appendix -- Ratings of Senior Securities.................... 53
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Harbor Fund (the "Fund") is a diversified,
open-end management investment company organized as a Delaware business trust.
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek current
income, capital appreciation and conservation of capital. There is no assurance
that the Fund will achieve its investment objective. See "Investment Objective
and Policies."
INVESTMENT POLICY AND RISKS. The Fund seeks to achieve its investment objective
by investing principally in debt securities, primarily convertible bonds, and
convertible preferred stocks. The Fund may invest in lower-rated convertible
securities (commonly referred to as "junk bonds") which involve additional
risks. See "Risks of Medium and Lower-Rated Securities." Use of options, futures
contracts and related options may involve additional risks. See "Investment
Practices -- Using Options, Futures Contracts and Related Options."
INVESTMENT RESULTS. The investment results of the Fund are shown in the table of
"Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
public, each with its own sales charge structure: Class A shares, Class B shares
and Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. Each class of shares represents an
interest in the same portfolio of investments of the Fund. See "Alternative
Sales Arrangements." For information on redeeming shares see "Redemption of
Shares."
Class A Shares. Class A shares are offered at net asset value per share plus a
maximum initial sales charge of 5.75% of the offering price (6.10% of the net
amount invested), reduced on investments of $50,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge ("CDSC") of 1.00% may be imposed on
redemptions made within one year of purchase. Class A shares are subject to an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares --Class A Shares" and
"Distribution and Service Plans."
3
<PAGE> 6
Class B Shares. Class B shares are offered at net asset value per share and
are subject to a maximum CDSC of 5.00% on redemptions made within the first year
after purchase and declining thereafter to 0.00% after the fifth year. See
"Redemption of Shares." Class B shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class B
Shares" and "Distribution and Service Plans." Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Alternative
Sales Arrangements -- Conversion Feature."
Class C Shares. Class C shares are offered at net asset value per share and
are subject to a CDSC of 1.00% on redemptions made within one year of purchase.
See "Redemption of Shares." Class C shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution and Service Plans."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the Fund's investment adviser.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are
distributed quarterly. Capital gains, if any, are distributed at least annually.
Such distributions are automatically reinvested in shares of the Fund at net
asset value per share (without sales charge) unless payment in cash is
requested. See "Distributions from the Fund."
The foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
4
<PAGE> 7
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 5.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or Year 1--1.00%
redemption proceeds).......... None(2) Year 1--5.00%
Year 2--4.00% After--None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>
- ------------------------------------------------------------------------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of purchase. See "Purchase of Shares -- Class A Shares."
5
<PAGE> 8
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of
average daily net assets).......... 0.54% 0.54% 0.54%
12b-1 Fees (as a percentage of
average daily net assets)(1)....... 0.23% 1.00%(2) 1.00%(2)
Other Expenses (as a percentage of
average daily net assets).......... 0.27% 0.28% 0.28%
Total Fund Operating Expenses (as a
percentage of average daily net
assets)............................ 1.04% 1.82% 1.82%
</TABLE>
- ------------------------------------------------------------------------------
(1) Class A shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
shares and Class C shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Distribution and Service Plans."
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a fund-level expense by NASD
Rules.
6
<PAGE> 9
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
EXAMPLE: ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.04% for
Class A shares, 1.82% for Class B
shares and 1.82% for Class C shares,
(ii) a 5.00% annual return and (iii)
redemption at the end of each time
period:
Class A.............................. $67 $89 $112 $177
Class B.............................. $68 $87 $114 $193*
Class C.............................. $28 $57 $ 99 $214
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A.............................. $67 $89 $112 $177
Class B.............................. $18 $57 $ 99 $193*
Class C.............................. $18 $57 $ 99 $214
</TABLE>
- ------------------------------------------------------------------------------
* Based on conversion to Class A shares after eight years.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. The ten year amount with respect to Class B shares of the
Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A shares. Class B shares acquired through the
exchange privilege are subject to the CDSC schedule relating to the Class B
shares of the fund from which the purchase of Class B shares was originally
made. Accordingly, future expenses as projected could be higher than those
determined in the above table if the investor's Class B shares were exchanged
from a fund with a higher CDSC. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "Redemption of Shares" and "Distribution and Service Plans."
7
<PAGE> 10
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest
outstanding throughout each of the periods indicated)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. The most recent
annual report (which contains financial highlights for the last five years) is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the cover page of
this Prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A SHARES
-------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------- ------- ------ ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $15.054 $15.05 $13.24 $15.12 $14.95 $14.92 $12.93 $14.05 $12.39 $11.48
------- ------ ------- ------- ------ ------- ------ ------- ------ ------
Net Investment Income............. .600 .566 0.68 0.63 0.69 0.75 0.825 0.995 0.895 0.85
Net Realized and Unrealized
Gain/Loss....................... 1.854 1.173 2.25 (1.5625) 1.365 0.6275 2.085 (1.1525) 1.605 1.03
------- ------ ------- ------- ------ ------- ------ ------- ------ ------
Total from Investment Operations... 2.454 1.739 2.93 (0.9325) 2.055 1.3775 2.91 (0.1575) 2.50 1.88
------- ------ ------- ------- ------ ------- ------ ------- ------ ------
Less:
Distributions From and in Excess
of Net Investment Income........ .730 .555 0.7025 0.62 0.66 0.84 0.92 0.87 0.84 0.84
Distributions From and in Excess
of Net Realized Gain............ 1.719 1.180 0.4175 0.108 1.225 0.5075 -- 0.0925 -- 0.13
Total Distributions................ 2.449 1.735 1.12 0.9475 1.885 1.3475 0.92 0.9625 0.84 0.97
------- ------ ------- ------- ------ ------- ------ ------- ------ ------
Net Asset Value, End of the
Period............................ $15.059 $15.05 $15.05 $13.24 $15.12 $14.95 $14.92 $12.93 $14.05 $12.39
======= ====== ======= ======= ====== ======= ====== ======= ====== ======
Total Return(a).................... 16.91% 12.08% 22.46% (6.43%) 13.56% 9.63% 23.08% (1.23%) 20.59% 16.76%
Net Assets, at End of the Period
(In Millions)..................... $ 376.4 $373.1 $394.5 $369.7 $432.3 $394.1 $385.5 $336.9 $387.3 $342.1
Ratio of Expenses to Average Net
Assets(b)......................... 1.04% 1.09% 1.00% 1.04% 1.02% 0.99% 0.91% 0.89% 0.76% 0.71%
Ratio of Net Investment Income to
Average Net Assets(b)............. 3.58% 3.60% 4.62% 4.39% 4.37% 5.00% 5.86% 7.29% 6.52% 6.82%
Portfolio Turnover................. 170% 129% 130% 105% 134% 85% 91% 71% 94% 95%
Average Commission Paid Per Equity
Share Traded(b)................... $ .0599 $.0605 -- -- -- -- -- -- -- --
</TABLE>
(Table and footnotes continued on following page)
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993(D) 1992(D)(E)
-------- -------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $14.992 $14.99 $13.20 $15.07 $14.90 $14.91
-------- -------- -------- -------- ------- --------
Net Investment Income....................... 0.470 0.437 0.56 0.51 0.56 0.595
Net Realized and Unrealized Gain/Loss on
Securities................................ 1.848 1.180 2.23 (1.5505) 1.375 0.63
-------- -------- -------- -------- ------- --------
Total from Investment Operations............. 2.318 1.617 2.79 (1.0405) 1.935 1.225
-------- -------- -------- -------- ------- --------
Less:
Distributions from and in Excess of Net
Investment Income......................... 6.10 0.435 0.5825 0.502 0.54 0.7275
Distributions from and in Excess of Net
realized gain on securities............... 1.719 1.180 0.4175 0.3275 1.225 0.5075
-------- -------- -------- -------- ------- --------
Total Distributions.......................... 2.329 1.615 1.00 0.8295 1.765 1.235
-------- -------- -------- -------- ------- --------
Net Asset Value, End of the Period........... $14.981 $14.992 $14.99 $13.20 $15.07 $14.90
======== ======== ======== ======== ======= ========
Total Return (a)............................. 15.98% 11.19% 21.46% (7.11%) 12.68% 8.56%
Net Assets at End of the Period (In
millions)................................... $81.3 $78.9 $78.1 $71.1 $60.1 $20.0
Ratio of Expenses to Average Net Assets
(b)......................................... 1.82% 1.88% 1.81% 1.84% 1.73% 1.88%
Ratio of Net Investment Income to Average Net
Assets (b).................................. 2.80% 2.81% 3.81% 3.63% 3.62% 4.08%
Portfolio Turnover........................... 170% 129% 130% 105% 134% 85%
Average Commission Paid Per
Equity Share Traded (c)..................... $.0599 $.0605 -- -- -- --
<CAPTION>
CLASS C SHARES
-----------------------------------------------------------
OCTOBER 26,
1993
(COMMENCEMENT
YEAR ENDED DECEMBER 31, OF DISTRIBUTION
----------------------------------------- TO DECEMBER 31,
1997 1996 1995 1994 1993(D)
-------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $15.079 $15.07 $13.25 $15.13 $16.14
-------- -------- -------- -------- --------
Net Investment Income....................... .448 0.439 0.56 0.52 0.15
Net Realized and Unrealized Gain/Loss on
Securities................................ 1.882 1.185 2.26 (1.5705) (0.0325)
-------- -------- -------- -------- --------
Total from Investment Operations............. 2.330 1.624 2.82 (1.0505) 0.1175
-------- -------- -------- -------- --------
Less:
Distributions from and in Excess of Net
Investment Income......................... .610 0.435 0.5825 0.502 0.125
Distributions from and in Excess of Net
realized gain on securities............... 1.719 1.180 0.4175 0.3275 1.0025
-------- -------- -------- -------- --------
Total Distributions.......................... 2.329 1.615 1.00 0.8295 1.1275
-------- -------- -------- -------- --------
Net Asset Value, End of the Period........... $15.080 $15.079 $15.07 $13.25 $15.13
======== ======== ======== ======== ========
Total Return (a)............................. 15.96% 11.20% 21.52% (7.14%) 0.93%*
Net Assets at End of the Period (In
millions)................................... $4.6 $3.6 $3.6 $3.3 $1.1
Ratio of Expenses to Average Net Assets
(b)......................................... 1.82% 1.88% 1.80% 1.84% 1.90%
Ratio of Net Investment Income to Average Net
Assets (b).................................. 2.79% 2.81% 3.80% 3.72% 3.88%
Portfolio Turnover........................... 170% 129% 130% 105% 134%
Average Commission Paid Per
Equity Share Traded (c)..................... .0599 $.0605 -- -- --
</TABLE>
- ------------
* Non-annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to the Adviser's reimbursement of certain expenses was less
than 0.01%.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(d) Based on average month-end shares outstanding.
(e) Sales of Class B shares commenced on December 20, 1991 at a net asset value
of $14.32 per share. At December 31, 1991, there were 15,738 Class B shares
outstanding with a per share net asset value of $14.91. The increase in net
asset value was due principally to unrealized appreciation; there were no
dividends or distributions paid during the period. Other financial
highlights for the Class B shares for this short period are not presented as
they are not meaningful.
9
<PAGE> 12
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way to invest in a diversified
portfolio of securities by combining their resources in an effort to achieve
such goals.
Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser or its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The Fund's investment objective is to seek to provide current income, capital
appreciation, and conservation of capital. The Fund seeks to achieve its
investment objective by investing principally in debt securities, primarily
convertible bonds, and convertible preferred stocks. The Fund has a fundamental
investment policy of investing, under normal market conditions, at least 50% of
the Fund's total assets, exclusive of cash, cash equivalents and government
securities, in convertible debt securities. There can be no assurance that the
Fund will achieve its investment objective.
Convertible bonds and preferred stocks generally are securities that do not
participate in any dividend increases or decreases of the underlying common
stocks. However, the market prices of convertible bonds and preferred stocks may
be affected by any such dividend changes. The Fund will give priority, where
consistent with its other objectives, to the convertible securities and common
stocks of companies whose common stocks appear to have good prospects for
capital appreciation. This policy will ordinarily emphasize companies that have
an established record of growth. However, the Fund may invest in more cyclical
companies when the investment can be made at prices considered attractive by the
Adviser. The Fund has a fundamental investment policy of not investing more than
45% of its total assets in common stocks.
Convertible securities rank senior to common stocks in a corporation's capital
structure and generally entail less risk than the corporation's common stock,
although the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security. Through careful selection of individual securities,
diversification of investments, and by continuing supervision of the investment
portfolio, the Adviser strives to reduce risk and thereby conserve principal.
While attractive convertible
10
<PAGE> 13
securities of desired quality may not be available in all industries at all
times, their general availability is considered by the Adviser to be more than
adequate in light of the Fund's investment objectives.
Debt securities acquired by the Fund are not subject to any limitations as to
ratings and may include high, medium, lower and non-rated debt securities. To
the extent that the Fund invests a large portion of its total assets in
lower-rated securities, the Fund's ability to conserve shareholder capital may
be diminished.
Medium grade debt securities are those rated BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), comparably
rated short-term debt obligations and unrated debt securities determined by the
Adviser to be of comparable quality. Debt securities rated BBB by S&P generally
are regarded by S&P as having an adequate capacity to pay interest and repay
principal; adverse economic conditions or changing circumstances are, however,
more likely in S&P's view to lead to a weakened capacity to pay interest and
repay principal as compared with higher rated debt securities. Debt securities
rated Baa by Moody's generally are considered by Moody's as medium grade
obligations, i.e., they are neither highly protected nor poorly secured. In
Moody's view, interest payments 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. In Moody's view,
such securities lack outstanding investment characteristics and have speculative
characteristics as well.
Lower grade debt securities are those rated between BB and D (inclusive) by
S&P, Ba and C by Moody's, comparably rated short-term debt obligations and
unrated debt securities determined by the Adviser to be of comparable quality,
which securities sometimes are referred to as "junk bonds". Debt securities
rated BB, B, CCC, CC and C by S&P generally are regarded by S&P, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation with
respect to such securities. While such debt will likely have some quality and
protective characteristics, in S&P's view these are outweighed by large
uncertainties or major risk exposures to adverse conditions. Securities rated D
by S&P are in default. Securities rated Ba are, in Moody's view, judged to have
speculative elements; their future cannot be considered as well assured. In
Moody's view, often the protection of interest and principal payments may be
very moderate and thereby not as well safeguarded during both good and bad times
in the future. Securities rated B by Moody's are viewed by Moody's as generally
lacking characteristics of a desirable investment. In Moody's view, assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Bonds which are rated Caa by Moody's
are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest. Bonds which are rated
Ca by Moody's represent obligations which are
11
<PAGE> 14
speculative in a high degree. Such issues are often in default or have other
market shortcomings. Bonds which are rated C by Moody's 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. A complete description
of the various S&P and Moody's rating categories is included as Appendix A to
this Prospectus.
During the fiscal year ended December 31, 1997, the average percentage of the
Fund's assets invested in debt securities within the various rating categories
(based on the higher of the S&P or Moody's ratings), and the non-rated debt
securities, determined on a dollar weighted average, were as follows:
<TABLE>
<CAPTION>
ACTUAL IMPLIED TOTAL
------ ------- ------
<S> <C> <C> <C>
AAA............................ 2.38% 0.00% 2.38%
AA............................. 5.16% 0.00% 5.16%
A.............................. 21.98% 2.01% 23.99%
BBB............................ 18.39% 1.87% 20.26%
BB............................. 11.36% 1.96% 13.32%
B.............................. 25.41% 8.38% 33.79%
CCC............................ 0.52% 0.55% 1.07%
CC............................. 0.00% 0.03% 0.03%
C.............................. 0.00% 0.00% 0.00%
D.............................. 0.00% 0.00% 0.00%
----- ----- ------
85.20% 14.80% 100.00%
===== ===== ======
</TABLE>
In abnormal market conditions, the Fund may invest up to 100% of its assets in
cash, cash equivalents and government securities for temporary defensive
purposes. Cash equivalents include certificates of deposit, prime commercial
paper, bankers' acceptances and repurchase agreements.
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 with respect to the Fund. An investment in the Fund is
intended to be a long-term investment and should not be used as a trading
vehicle.
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Adviser and other service providers do not properly process and
calculate date-related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem". The Adviser is taking steps that
it believes are reasonably designed to address the Year 2000 Problem with
respect to computer systems that it uses and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurance that these steps will be
sufficient to avoid any adverse impact upon the Fund. In addition, the Year 2000
Problem may adversely affect the issuers of securities in which the Fund may
invest which, in turn, may adversely affect the net asset value of the Fund.
12
<PAGE> 15
- ------------------------------------------------------------------------------
RISKS OF MEDIUM AND LOWER-RATED SECURITIES
- ------------------------------------------------------------------------------
Debt securities which are in the medium and lower grade categories generally
offer a higher current yield than is offered by higher grade debt securities,
but they also generally involve greater price volatility and greater credit and
market risk. Credit risk relates to the issuer's ability to make timely payment
of interest and principal when due. Market risk relates to the changes in market
value that occur as a result of variation in the level of prevailing interest
rates and yield relationships in the debt securities market and as a result of
real or perceived changes in credit risk.
The value of the Fund's portfolio securities 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. However, the secondary market prices of
medium and lower grade debt securities are less sensitive to changes in interest
rate and are more sensitive to adverse economic changes or developments with
respect to the particular issues than are the secondary market prices of higher
grade debt securities. A significant increase in interest rates or a general
economic downturn could severely disrupt the market for lower grade debt
securities and adversely affect the market value of such securities. Such events
also could lead to a higher incidence of default by issuers of lower grade debt
securities as compared with historical default rates. In addition, changes in
interest rates and periods of economic uncertainty can be expected to result in
increased volatility in the market price of the debt securities in the Fund's
portfolio 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 and liquidity of medium and lower grade debt securities.
Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of medium and lower grade debt securities to pay interest
and to repay principal, to meet projected financial goals and to obtain
additional financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal or 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 portfolio
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 thereof.
To the extent that there is no established retail market for some of the
medium or lower grade debt securities in which the Fund may invest, trading in
such securities may be relatively inactive. The Adviser is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Trustees. During
13
<PAGE> 16
periods of reduced market liquidity and in the absence of readily available
market quotations for medium and lower grade debt securities held in the Fund's
portfolio, the ability of the Adviser to value the Fund's securities becomes
more difficult and the Adviser's use of judgment may play a greater role in the
valuation of the Fund's securities due to the reduced availability of reliable
objective data. 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.
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. To the extent that the Fund purchases
illiquid debt securities or securities which are restricted as to resale, the
Fund may be required to incur costs in connection with the registration of
restricted securities in order to dispose of such securities, although under
Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), such
securities may become more liquid.
The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. In its analysis, the Adviser may
consider the credit ratings of Moody's and S&P in evaluating debt securities
although it does not rely primarily on these ratings. Such ratings evaluate only
the safety of principal and interest payments, not market value risk.
Additionally, because the creditworthiness of an issuer may change more rapidly
than is able to be timely reflected in changes in credit ratings, the Adviser
continuously monitors the issuers of debt securities held in the Fund's
portfolio. Because of the nature of medium and lower rated debt securities,
achievement by the Fund of its investment objective may be more dependent on the
credit analysis of the Adviser than is the case for an investment company which
invests primarily in higher grade securities.
CONVERTIBLE SECURITIES. A "convertible security" includes any debt security
which has the right to be converted into any other security or which carries
with it the right to purchase any other security, any unit including one of the
foregoing, and any other security for which it is expected that one of the
foregoing will be received in exchange within a reasonably short period of time
in a merger, acquisition, reorganization, recapitalization, or otherwise. A
convertible security entitles the holder to exchange it for a fixed number of
shares of common stock or other equity security, usually of the same company, at
fixed prices within a specified period of time. A convertible security entitles
the holder to receive the income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion privilege.
The difference between the market price of the convertible security and the
market price of the securities into which it may be converted is called the
"premium." When the premium is small, the convertible security has performance
characteristics similar to an equity security; when the premium is large, the
convertible security has performance characteristics similar to a debt
14
<PAGE> 17
security. The conversion privilege may take the form of warrants attached to the
bond or preferred stock which entitle the holder to purchase a specific number
of shares of common stock or other equity security, usually of the same company,
at fixed prices for a specified period of time.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks or broker-dealers in order to earn a return on temporarily available cash.
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Fund may invest up to 25% of its
assets in repurchase agreements but will not invest in repurchase agreements
that do not mature within seven days if any such investment, together with any
other illiquid securities held by the Fund, would exceed 10% of the value of its
net assets. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto, (b) possible lack of access to income on the underlying security
during this period and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair administration of the joint account
and to protect the amounts in that account.
RESTRICTED SECURITIES. The Fund may invest up to 10% of its net assets in
restricted securities and other illiquid assets. As used herein, restricted
securities are those that have been sold in the United States without
registration under the 1933 Act and are thus subject to restrictions on resale.
Excluded from the limitation, however, are any restricted securities which are
eligible for resale pursuant to Rule 144A under the 1933 Act and which have been
determined to be liquid by the Trustees or by the Adviser pursuant to guidelines
established by the
15
<PAGE> 18
Trustees. Restricted securities generally may be resold only in privately
negotiated transactions with a limited number of purchasers or in a public
offering registered under the 1933 Act. Considerable delay could be encountered
in either event. These difficulties and delays could result in the Fund's
inability to realize a favorable price upon disposition of restricted
securities, and in some cases might make disposition of such securities at the
time desired by the Fund impossible. Since market quotations may not be readily
available for restricted securities, such securities will be valued by a method
that the Fund's Trustees believe accurately reflects fair value. Also excluded
from this limitation are securities of other investment companies to the extent
permitted by (i) the Investment Company Act of 1940, as amended from time to
time (the "1940 Act"), (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize options, futures contracts and options thereon in several different
ways, depending upon the status of the Fund's portfolio and the Adviser's
expectations concerning the securities markets. The Fund may use one or more of
the following strategies in connection with the equity portion of its portfolio.
In times of stable or rising stock prices, the Fund generally seeks to be
fully invested in the equity securities market. Even when the Fund is fully
invested, however, prudent management requires that at least a small portion of
assets be available as cash to honor redemption requests and for other
short-term needs. The Fund also may have cash on hand that has not yet been
invested. The portion of the Fund's assets that is invested in cash equivalents
does not fluctuate with security market prices, so that, in times of rising
market prices, the Fund may underperform the market in proportion to the amount
of cash equivalents in its portfolio. By purchasing stock index futures
contracts, however, the Fund can compensate for the cash portion of its assets
and may obtain performance equivalent to investing 100% of its assets in equity
securities.
If the Adviser forecasts a market decline, the Fund may seek to reduce its
exposure to the securities markets by increasing its cash position. By selling
stock index futures contracts instead of portfolio securities, a similar result
can be achieved to the extent that the performance of the futures contracts
correlates to the performance of the Fund's portfolio securities. Sales of
futures contracts frequently may be accomplished more rapidly and at less cost
than the actual sale of securities. Once the desired hedged position has been
effected, the Fund could then liquidate securities in a more deliberate manner,
reducing its futures position simultaneously to maintain the desired balance, or
it could maintain the hedged position.
16
<PAGE> 19
As an alternative to selling futures contracts, the Fund can purchase puts, or
futures puts, to hedge the portfolio's risk in a declining market. Since the
value of a put increases as the underlying security declines below a specified
level, the 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.
In addition, the Fund would pay commissions and other costs in connection with
such investments, which may increase the Fund's expenses and reduce its return.
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial institutions or other parties ("Counterparties") through direct
bilateral agreement with the Counterparty. The Fund will sell only OTC Options
(other than over-the-counter currency options) that are subject to a buy-back
provision permitting the Fund to require 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 investing no more than 10% of its assets in illiquid
securities. The Fund will not enter into a futures contract or related option
(except for closing transactions) other than for bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options, thereon would exceed 5% of the Funds
total assets taken at current value. 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. Use of options and futures would be likely to
increase the Fund's portfolio turnover rate and increase transaction costs.
POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. In certain
cases, the options and futures markets provide investment or risk management
opportunities that are not available from direct investments in securities. In
addition, some strategies can be performed with greater ease and at lower cost
by utilizing the options and futures markets than by purchasing or selling
portfolio securities. However, the purchase and sale of options, futures
contracts and related options involve risks different from those involved with
direct investments in underlying securities. While utilization of options,
futures contracts and similar instruments may be advantageous to the Fund, if
the Adviser is not successful in employing such instruments in managing the
Fund's investments, the Fund's performance will be worse than if the Fund did
not make such investments.
In order to prevent leverage in connection with the purchase of futures
contracts thereon by the Fund, an amount of cash or liquid securities equal to
the market
17
<PAGE> 20
value of the obligation under the futures contracts (less any related margin
deposits) will be maintained in a segregated account with the Custodian. Capital
gains realized by the Fund from transactions in options and futures contracts
may increase shareholders' tax liability if not offset by capital losses
realized by the Fund. A more complete discussion of the potential risks involved
in transactions in options, futures contracts and related options is contained
in the Statement of Additional Information.
PORTFOLIO TURNOVER. The Fund may purchase and sell securities without regard
to the length of time the security is anticipated to be or has been held. The
Fund's annual portfolio turnover is shown in the table of "Financial
Highlights." The rate may exceed 100% in any given year, which is higher than
that of many other investment companies. A 100% turnover rate occurs, for
example, if all the Fund's portfolio securities are replaced during one year.
High portfolio activity increases the Fund's transaction costs, including
brokerage commissions, and may result in the realization of more short-term
capital gains than if the Fund had lower portfolio turnover. To the extent
short-term trading results in realization of gains on securities held for one
year or less, shareholders are subject to taxes at ordinary income rates. The
turnover rate will not be a limiting factor, however, if the Adviser deems
portfolio changes appropriate.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuing basis. The Adviser may place portfolio transactions, to the
extent permitted by law, with brokerage firms affiliated with the Fund, the
Adviser or the Distributor and with firms participating in the distribution of
shares of the Fund if it reasonably believes that the quality of the execution
and the commissions are comparable to that available from other qualified firms.
The Adviser is authorized to pay higher commissions to brokerage firms that
provide it with investment and research information than to firms which do not
provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. The information
received may be used by the Adviser in managing the assets of other advisory
accounts as well as in the management of the assets of the Fund.
INVESTMENT RESTRICTIONS. The Fund has adopted certain restrictions which, like
the investment objective, may not be changed without approval by a vote of a
majority of the outstanding voting shares of the Fund (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")). See the Statement
of Additional Information. One of these restrictions provides that the Fund may
not invest more than 25% of its assets in securities issued by companies in any
one industry.
18
<PAGE> 21
In addition to the foregoing, the Fund has adopted additional investment
restrictions which may be changed by the Trustees without a vote of
shareholders. One of these restrictions provides that the Fund may not invest
more than 15% of the value of its total assets in securities of foreign issuers.
Such securities may be subject to foreign government taxes which would reduce
the income yield on such securities. Foreign investments involve certain risks,
such as political or economic instability of the issuer or of the country of
issue, the difficulty of predicting international trade patterns, fluctuating
exchange rates and the possibility of imposition of exchange controls. Such
securities may also be subject to greater fluctuations in price than securities
of domestic corporations or of the United States Government. In addition, there
may be less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. There is generally less government regulation
of stock exchanges, brokers and listed companies abroad than in the United
States, and, with respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, or diplomatic developments which
could affect investment in those countries. Finally, in the event of a default
on any such foreign debt obligations, it may be more difficult for the Fund to
obtain or to enforce a judgment against the issuers of such securities.
Another of these restrictions provides that the Fund may not invest more than
10% of its net assets, determined at the time of investment, in illiquid
securities and repurchase agreements that have a maturity of longer than seven
days.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $60 billion under management or supervision. Van Kampen American Capital's
more than 50 open-end and 38 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen American Capital Distributors, Inc., the distributor of
the Fund and the sponsor of the funds mentioned above, is also a wholly-owned
subsidiary of Van Kampen American Capital. Van Kampen American Capital is an
indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment
19
<PAGE> 22
adviser, Morgan Stanley & Co. Incorporated, a registered broker-dealer and
investment adviser, and Morgan Stanley International, are engaged in a wide
range of financial services. Their principal businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock brokerage
and research services; credit services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY
NET ASSETS % PER ANNUM
------------- -------------
<S> <C>
First $350 million.............................. 0.55 of 1.00%
Next $350 million............................... 0.50 of 1.00%
Next $350 million............................... 0.45 of 1.00%
Over $1.05 billion.............................. 0.40 of 1.00%
</TABLE>
Under the Advisory Agreement, the Fund also reimburses the Adviser for the cost
of the Fund's accounting services, which include maintaining its financial books
and records and calculating its daily net asset value. Operating expenses paid
by the Fund include service fees, distribution fees, custodian fees, legal and
accounting fees, the costs of reports and proxies to shareholders, trustees'
fees (other than those who are affiliated persons, as defined in the 1940 Act,
of the Adviser, Distributor, ACCESS, Van Kampen American Capital or Morgan
Stanley Dean Witter & Co.), and all other business expenses not specifically
assumed by the Adviser. Advisory (management) fee and total operating expense
ratios are shown under the caption "Annual Fund Operating Expenses and Example"
herein.
From time to time the Adviser or Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them to the extent
of, or bearing expenses in excess of, such limitations as they may establish.
20
<PAGE> 23
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors, trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. The Fund is managed by a management team headed by
Christine Drusch. Ms. Drusch has been primarily responsible for managing the
Fund's investment portfolio since February 1998. Ms. Drusch has been an
Assistant Vice President of the Adviser and Advisory Corp. since September 1995.
Prior to that time, Ms. Drusch was Associate Portfolio manager of the Adviser.
Matthew Hart is responsible as a co-manager for the day-to-day management of the
Fund's investment portfolio. Mr. Hart has been Associate Portfolio Manager of
the Adviser and Advisory Corp. since August 1997. Prior to that time, Mr. Hart
was with AIM Capital Management.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 5.75% of the offering price (6.10% of the net
amount invested), reduced on investments of $50,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a CDSC of 1.00% may be imposed on certain redemptions made within one year of
the purchase. Class A shares are subject to an ongoing service fee at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares. Certain purchases of Class A shares qualify
for reduced initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit
21
<PAGE> 24
of permitting all of the investor's dollars to work from the time the investment
is made. The ongoing distribution fee paid by Class B shares will cause such
shares to have a higher expense ratio and to pay lower dividends than those
related to Class A shares. Class B shares convert automatically to Class A
shares eight years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Purchase of Shares -- Class B
Shares."
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares."
CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares eight years after the end of the calendar month in which the
shares were purchased. Class B shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares six years after the end of the calendar month in which the shares
were purchased. Class C shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share acquired through the
exchange privilege is determined by reference to the Participating Fund (defined
below) from which such share was originally purchased.
The conversion of such shares to Class A shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) the conversion of shares does not constitute a taxable
event under federal income tax law. The conversion may be suspended if such an
opinion is no longer available and such shares might continue to be subject to
the higher aggregate fees applicable to such shares for an indefinite period.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
antici-
22
<PAGE> 25
pated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher aggregate fees and CDSC on Class B shares and Class C shares would be
less than the initial sales charge on Class A shares purchased at the same time,
and to what extent such differential would be offset by the potentially higher
dividends per share on Class A shares. To assist investors in making this
determination, the table under the caption "Annual Fund Operating Expenses and
Example" sets forth examples of the charges applicable to each class of shares.
In this regard, Class A shares may be more beneficial to the investor who
qualifies for reduced initial sales charges or purchases shares at net asset
value. It is presently the policy of the Distributor not to accept any order of
$500,000 or more for Class B shares or any order of $1 million or more for Class
C shares as it would ordinarily be more beneficial for such an investor to
purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A shares or Class B
shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges or have a longer-term investment horizon.
Class B shares may be appropriate for investors who wish to avoid a front-end
sales charge, put 100% of their investment dollars to work immediately or have a
longer-term investment horizon. Class C shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, have a shorter-term investment horizon or desire a short
CDSC schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Sales personnel
23
<PAGE> 26
of broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND
FUNCTION OF THE CDSC AND ONGOING DISTRIBUTION FEE WITH RESPECT TO THE CLASS B
SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE INITIAL SALES CHARGE WITH
RESPECT TO CLASS A SHARES. See "Distribution and Service Plans."
GENERAL. Dividends paid by the Fund with respect to Class A shares, Class B
shares and Class C shares will be calculated in the same manner at the same time
on the same day, except that the higher distribution fees and transfer agency
costs relating to Class B shares or Class C shares will be borne by the
respective class. See "Distributions from the Fund." Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class of
certain other mutual funds advised by the Adviser and its affiliates and
distributed by the Distributor. See "Shareholder Services -- Exchange
Privilege."
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers three classes of shares to the public on a continuous basis
through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares also are offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The "dealers" and "brokers" are sometimes referred to collectively herein as
"authorized dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Shares may be purchased on any business day through authorized dealers. Shares
also may be purchased by completing the application accompanying this Prospectus
and forwarding the application, through the authorized dealer, to the
shareholder service agent, ACCESS Investor Services, Inc., ("ACCESS"), a
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
24
<PAGE> 27
Shares are offered at the next determined net asset value per share, plus a
front-end or deferred sales charge depending on the class of shares chosen by
the investor, as shown in the tables herein. Net asset value per share for each
class is determined once daily as of the close of trading on the New York Stock
Exchange (the "Exchange") (currently 4:00 p.m., New York time) each day the
Exchange is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class, less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.
Securities and options listed or traded on a national securities exchange are
valued at the last sale price. Unlisted securities and listed securities for
which the last sale price is not available are valued at the most recent bid
price, except unlisted convertible securities, which are valued at the higher of
their bid price or the value of the securities issuable on conversion. Listed
options for which the last sale price is not available are valued at the mean
between the bid and asked prices. Short-term investments are valued in the
manner described in the notes to the financial statements contained in the
Statement of Additional Information.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. Orders received by authorized
dealers after the close of the Exchange are priced based on the next close,
provided they are received by the Distributor prior to the Distributor's close
of business on such day. It is the responsibility of authorized dealers to
transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the authorized dealer
and processed at the offering price next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights except that (i) Class B shares
and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher distribution fee and transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class has exclusive
voting rights with respect to approvals of the Rule 12b-1 distribution plan
pursuant to which its distribution fee or service fee is paid, (iii) each class
of shares has different exchange privileges, (iv) certain classes of shares are
subject to a conversion feature and (v) certain
25
<PAGE> 28
classes of shares have different shareholder service options available. The net
income attributable to Class B shares and Class C shares and the dividends
payable on Class B shares and Class C shares will be reduced by the amount of
the distribution fee and other expenses associated with such shares. Sales
personnel of authorized dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which an
authorized dealer's sales force may be eligible to win nominal awards for
certain sales 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 dealers at the
public offering price during such programs. Other programs provide, among other
things and subject to certain conditions, for certain favorable distribution
arrangements for shares of the Fund. Also, the Distributor in its discretion may
from time to time, pursuant to objective criteria established by the
Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Fund. Fees may include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. In some instances additional compensation or promotional incentives may
be offered to brokers, dealers or financial intermediaries that have sold or may
sell significant amounts of shares during specified periods of time. 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 the Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the net asset value plus a
sales charge, as set forth below.
26
<PAGE> 29
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
AS % OF AS % OF DEALERS (AS
SIZE OF OFFERING NET AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.00%
$250,000 but less than $500,000 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more* * * *
- ----------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to authorized dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are reallowed all or substantially all of the sales commissions
may be deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited from providing certain underwriting or distribution services. If
banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretation of federal law
expressed herein and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
27
<PAGE> 30
Investors, or their authorized dealers, must notify the Fund at the time of
the purchase order whenever a quantity discount is applicable to purchases. Upon
such notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their authorized
dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or
her spouse and children under 21 years of age and any corporation, partnership
or sole proprietorship which is 100% owned, either alone or in combination, by
any of the foregoing; a trustee or other fiduciary purchasing for a single trust
or for a single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by the Adviser 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 preceding sales charge
table applies to the total dollar amount being invested by any person in shares
of the Fund, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over a
thirteen-month period to determine the sales charge as outlined in the preceding
sales charge table. The size of investment shown in the preceding table also
includes purchases of shares of the Participating Funds over a thirteen-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 thirteen-month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the sales charges applicable to the purchases
made and the sales charges previously paid. The initial purchase must be for an
amount equal to at least 5% of the minimum total purchase amount of the level
selected. If trades not initially made under a Letter of Intent subsequently
qualify for a lower sales charge through the 90-day back-dating provisions, an
adjustment will be made at the expiration of the Letter of Intent to give effect
to the lower charge. Such adjustments in sales charge will be used to purchase
additional shares for the shareholder at the applicable discount category.
28
<PAGE> 31
Additional information is contained in the application accompanying this
Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.
Unit Investment Trust Reinvestment Programs. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
shares of the Fund at net asset value and with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information with respect to this program, including the applicable
terms and conditions thereof, should contact their authorized dealer or the
Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund by:
29
<PAGE> 32
(1) Current or retired trustees or directors of funds advised by the Adviser
or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. 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 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 twelve-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 detail 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 distribution 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 Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing
30
<PAGE> 33
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is
at least $500,000 or (2) such shares are purchased by an employer
sponsored plan with more than 100 eligible employees. Such plans that have
been established with a Participating Fund or have received proposals from
the Distributor prior to February 1, 1997 based on net asset value
purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value for accounts
established on or before May 1, 1997. Section 403(b) and similar accounts
for which Van Kampen American Capital Trust Company served as custodian
will not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employees, except
under certain uniform criteria established by the Distributor from time to
time. Prior to February 1, 1997, a commission will be paid to authorized
dealers who initiate and are responsible for such purchases within a
rolling twelve-month period as follows: 1.00% on sales to $5 million, plus
0.50% on the next $5 million and 0.25% on the excess over $10 million. For
purchases on February 1, 1997 and thereafter, a commission will be paid as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million,
plus 0.50% on the next $47 million and 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 CDSC of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million and 0.50% on the excess over $3 million.
31
<PAGE> 34
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution and Service Plans"
on purchases made as described in (3) through (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.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a CDSC at the rates set
forth in the following table charged as a percentage of the dollar amount
subject thereto. The charge is assessed on an amount equal to the lesser of the
then current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions. It is presently the
policy of the Distributor not to accept any order for Class B shares in an
amount of $500,000 or more because it ordinarily will be more advantageous for
an investor making such an investment to purchase Class A shares.
The amount of the CDSC, if any, varies depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
<S> <C>
- ------------------------------------------------------------------------------
First....................................... 5.00%
Second...................................... 4.00%
Third....................................... 3.00%
Fourth...................................... 2.50%
Fifth....................................... 1.50%
Sixth and after............................. None
</TABLE>
- ------------------------------------------------------------------------------
32
<PAGE> 35
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC, second of shares held for over five years and
third of shares held longest during the five year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives, in the form of
cash or other compensation, to authorized dealers that sell Class B shares of
the Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
charge is assessed on an amount equal to the lower of the then current market
value or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price. In
addition, no charge is assessed on shares derived from reinvestment of dividends
or capital gains distributions. It is presently the policy of the Distributor
not to accept any order 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 buy Class A shares.
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC and second of shares held for more than one year.
A commission or transaction fee of up to 1.00% of the purchase amount will be
generally paid to authorized dealers at the time of purchase. Authorized dealers
also will be paid ongoing commissions and transaction fees of up to 0.75% of the
average daily net assets of the Fund's Class C shares annually commencing in the
second year after purchase. Additionally, the Distributor may, from time to
time, pay additional promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell Class C shares of the Fund.
33
<PAGE> 36
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemptions of Class B shares and Class C shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with required minimum distributions from an IRA or other
retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan but
limited to 12% annually of the initial value of the account and (iv) in
circumstances under which no commission or transaction fee is paid to authorized
dealers at the time of purchase of such shares; and (v) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The CDSC is also waived on redemptions of Class C shares
as it relates to the reinvestment of redemption proceeds in shares of the same
class of the Fund within 180 days after redemption. See the Statement of
Additional Information for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
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The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of such services.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which the
investor's shares of the Fund are held by ACCESS, the Fund's transfer agent.
ACCESS performs bookkeeping, data processing and administration services related
to the maintenance of shareholder accounts. Except as described in this
Prospectus, after each share transaction in an account, the shareholder receives
a statement showing the activity in the account. Each shareholder who has an
account in certain of the Participating Funds will receive statements quarterly
from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized dealers or by mailing a check directly to ACCESS.
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form
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acceptable to ACCESS. On the date the letter is received, ACCESS will calculate
a fee for replacing the lost certificates equal to no more than 2.00% of the net
asset value of the issued shares, and bill the party to whom the replacement
certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the record date. Unless the shareholder instructs otherwise, the
reinvestment plan is automatic. This instruction may be made by telephone by
calling (800) 341-2911 ((800) 421-2833 for the hearing impaired) or in writing
to ACCESS. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to debit a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; 401(k) plans; Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations; or
other pension or profit sharing plans. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as the custodian under the IRA, 403(b)(7)
and Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once ACCESS has received the
application and the voided check or deposit slip, such shareholder's designated
bank account, following any redemption, will be credited with the proceeds of
such redemption. Once enrolled in the ACH plan, a shareholder may terminate
participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application accompanying this
Prospectus, or
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by calling (800) 341-2911 ((800) 421-2833 for the hearing impaired), elect to
have all dividends and other distributions paid on a class of shares of the Fund
invested into shares of the same class of any Participating Fund so long as the
investor has a pre-existing account for such class of shares of the other fund.
Both accounts must be of the same type, either non-retirement or retirement. If
the accounts are retirement accounts, they must both be for the same class and
of the same type of retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and
for the benefit of the same individual. If a qualified, pre-existing account
does not exist, the shareholder must establish a new account subject to minimum
investment and other requirements of the fund into which distributions would be
invested. Distributions are invested into the selected fund at its net asset
value as of the payable date of the distribution.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of shares of any Participating Fund based on the next computed net asset
value of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of
the Participating Fund. Shareholders seeking an exchange into a Participating
Fund should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name for at least 30 days. 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 Class B shares and Class C shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund. If such
Class B or Class C shares are redeemed and not exchanged for shares of another
Participating Fund, such Class B or Class C shares are subject to the CDSC
schedule imposed by the Participating Fund from which such shares were
originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application accompanying this Prospectus. Van
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Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. If the exchanging
shareholder does not have an account in the fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gains options (except dividend diversification) and authorized
dealer of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, however, an exchanging shareholder must file a specific
written request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which any capital gain or loss will be recognized. The planholder may arrange
for monthly, quarterly, semi-annual, or annual checks in any amount not less
than $25. Such a systematic withdrawal plan may also be maintained by an
investor purchasing shares for a retirement plan established on a form made
available by the Fund. See "Shareholder Services -- Retirement Plans."
Class B shareholders and Class C shareholders who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.
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Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss by the shareholder upon redemption of shares is a
taxable event.
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.vkac.com
for further instruction. VKAC and the Fund employ procedures considered by them
to be reasonable to confirm that instructions communicated through the internet
are genuine. Such procedures include requiring use of a personal identification
number prior to acting upon internet instructions and providing written
confirmation of instructions communicated through the internet. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
instructions through the internet which it reasonably believes to be genuine. If
an account has multiple owners, ACCESS may rely on the instructions of any one
owner.
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REDEMPTION OF SHARES
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REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from authorized dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by an authorized dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of authorized dealers to
transmit redemption requests received by them to the Distributor so they will be
received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B shares
and Class C shares are subject to a CDSC. In addition, a CDSC of 1.00% may be
imposed on certain redemptions of Class A shares made within one year of
purchase for investments of $1 million or more. The CDSC incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
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expenses. A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange; registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received. Payment for shares redeemed will be made by check mailed within seven
days after acceptance by ACCESS of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, ACCESS may delay mailing a redemption check
until it confirms the purchase check has cleared, which may take up to fifteen
days. A taxable gain or loss will be recognized by the shareholder upon
redemption of shares.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record for the account or to
the bank account of record as described below. To establish such privilege, a
shareholder must complete the appropriate section of the application
accompanying this Prospectus
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or call the Fund at (800) 341-2911 to request that a copy of the Telephone
Redemption Authorization form be sent to them for completion. To redeem shares,
contact the telephone transaction line at (800) 421-5684. VKAC and the Fund
employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. The Fund reserves the right at any time to
terminate, limit or otherwise modify this redemption privilege.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum initial investment as specified in this Prospectus. At least 60 days
advance written notice of any such involuntary redemption will be given and the
shareholder will be given an opportunity to purchase the required value of
additional shares at the next determined net asset value without sales charge.
Any involuntary redemption may only occur if the shareholder account is less
than the minimum initial investment due to shareholder redemptions.
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REDEMPTION UPON DEATH OR DISABILITY. The Fund will waive the CDSC on
redemptions following the death or disability of a Class B shareholder or Class
C shareholder. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
CDSC on Class B shares and Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C shares
will be waived where the decedent or disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the death or initial determination of
disability. This waiver of the CDSC on Class B shares and Class C shares applies
to a total or partial redemption, but only to redemptions of shares held at the
time of the death or initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A shareholder or Class B shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A shares of the Fund. A Class C shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of the Fund with credit given for any CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen American Capital Trust Company for
repayment of principal, and interest, on their borrowings on such plans.
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DISTRIBUTION AND SERVICE PLANS
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The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of
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shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of each class.
The Distribution Plan and the Service Plan are being implemented through an
agreement with the Distributor and sub-agreement between the Distributor and
brokers, dealers or financial intermediaries (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance.
CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year
of the average daily net assets attributable to the Class A shares of the Fund
pursuant to the Distribution Plan and Service Plan. From such amount, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution-related expense. The rates above are 0.15% with respect to Class A
shares in accounts existing on or before September 30, 1989.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C shares up to 0.75% of the Fund's average daily
net assets attributable to Class C shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
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OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of shares, any unreimbursed expenses will be carried forward and paid
by the Fund (up to the amount of the actual expenses incurred) in future years
so long as such Distribution Plan is in effect. Except as mandated by applicable
law, the Fund does not impose any limit with respect to the number of years into
the future that such unreimbursed expenses may be carried forward (on a Fund
level basis). Because such expenses are accounted on a Fund level basis, in
periods of extreme net asset value fluctuation such amounts with respect to a
particular Class B share or Class C share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class. As of
December 31, 1997, there were $4,629,226 and $130,835 of unreimbursed
distribution-related expenses with respect to Class B shares and Class C shares,
respectively, representing 5.69% and 2.84% of the Fund's net assets attributable
to Class B shares and Class C shares, respectively. If the Distribution Plan was
terminated or not continued, the Fund would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through CDSCs.
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of shares. Various federal and state laws prohibit national
banks and some state-chartered commercial banks from underwriting or dealing in
the Fund's shares. In addition, state securities laws on this issue may differ
from the interpretations of federal law, and banks and financial institutions
may be required to register as dealers pursuant to state law. In the unlikely
event that a court were to find that these laws prevent such banks from
providing such services described above, the Fund would seek alternate providers
and expects that shareholders would not experience any disadvantage.
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DISTRIBUTIONS FROM THE FUND
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In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.
DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed quarterly as dividends to shareholders. Unless the
shareholder instructs otherwise, dividends are automatically applied to purchase
additional shares of the Fund at the next determined net asset value. See
"Shareholder Services -- Reinvestment Plan."
The per share dividends on Class B shares and Class C shares may be lower than
the per share dividends on Class A shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders at
least once a year the excess, if any, of its total profits on the sale of
securities during the year over its total losses on the sale of securities,
including capital losses carried forward from prior years under tax laws. As in
the case of dividends, capital gains distributions are automatically reinvested
in additional shares of the Fund at net asset value unless the shareholder
elects otherwise. See "Shareholders Services -- Reinvestment Plan."
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TAX STATUS
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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 net investment income (including tax-exempt interest, taxable
income and net short-term capital gain, but not net capital gains, which are the
excess of net long-term capital gains over net short-term capital losses), it
will not be required to pay federal income taxes on any income distributed to
shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to shareholders.
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In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make
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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. A portion of the discount relating to
certain stripped tax-exempt obligations may constitute taxable income when
distributed to shareholders.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income passive or (2) an average
of at least 50% of its assets produce, or are held for the production of,
passive income. Under certain circumstances, a regulated investment company that
holds stock of a PFIC will be subject to federal income tax (i) on a portion of
any "excess distribution" received on the stock or (ii) on any gain from a sale
or disposition of the stock (collectively, "PFIC income"), plus interest
thereon, even if the regulated investment company distributes the PFIC income as
a taxable dividend to its stockholders. The balance of the PFIC income will be
included in the regulated investment company's investment company taxable income
and, accordingly, will not be taxable to it to the extent that income is
distributed to its shareholders. If the Fund invests in a PFIC and elects to
treat the PFIC as a "qualified electing fund," then in lieu of the foregoing tax
and interest obligation, the Fund would be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, which most likely would have to be distributed by
the Fund to satisfy the distribution requirement for avoiding income and excise
taxes. In many instances it may be very difficult to make this election due to
certain requirements imposed with respect to the election.
As an alternative to making the above-described election to treat the PFIC as
a qualified electing fund, the Fund may make an election to annually
mark-to-market certain publicly traded PFIC stock (a "PFIC Mark-to-Market
Election"). "Marking-to-market," in this context, means recognizing as ordinary
income or loss each year an amount equal to the difference between the Fund's
adjusted tax basis in such PFIC stock and its fair market value. Losses will be
allowed only to the extent of net mark-to-market gain previously included by the
Fund pursuant to the election for prior taxable years. The Fund may be required
to include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or proceeds from dispositions
of, the PFIC stock. This amount would not be deductible from the Fund's taxable
income. The PFIC Mark-to-Market Election generally applies to the taxable year
for which made and to all subsequent taxable years, unless the Internal Revenue
Service consents to revocation of the election. By making the PFIC
Mark-to-Market Election, the Fund could ameliorate the adverse tax consequences
arising from its ownership of PFIC stock, but in any particular year may be
required to recognize income in
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<PAGE> 49
excess of the distributions it receives from the PFIC and proceeds from the
dispositions of PFIC stock.
DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital gain dividends"), if any, are taxable
to shareholders as long-term capital gains regardless of the length of time
shares of the Fund have been held by such shareholders. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates Under the 1997 Tax
Act" 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. Some portion of
the distributions from the Fund may be eligible for the dividends received
deduction for corporations if the Fund receives qualifying dividends during the
year and if certain other requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding and 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.
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<PAGE> 50
Under Code Section 988, foreign currency gains or losses from certain forward
contracts not traded in the interbank market as well as certain other gains or
losses attributable to currency exchange rate fluctuations are typically treated
as ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's income available for distribution. If, under the
rules governing the tax treatment of foreign currency gains and losses, the
Fund's income available for distribution is decreased or eliminated, all or a
portion of the dividends declared by the Fund may be treated for federal income
tax purposes as a return of capital or, in some circumstances, as capital gain.
Generally, a shareholder's tax basis in Fund shares will be reduced to the
extent that an amount distributed to such shareholder is treated as a return of
capital.
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be capital gain or loss and will be long-term if such shares
have been held for more than one year. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates under the 1997 Tax Act" below. Any
loss recognized upon a taxable disposition of shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gain
dividends received with respect to such shares. For purposes of determining
whether shares have been held for six months or less, the holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT.. Under the 1997 Tax Act, the
maximum tax rate applicable to net capital gains recognized by individuals and
other non-corporate taxpayers is (i) the same as the maximum ordinary income tax
rate for capital assets held for one year or less, (ii) 28% for capital assets
held for more than one year but not more than 18 months and (iii) 20% for
capital assets held for more than 18 months. The 1997 Tax Act did not affect the
maximum net capital gains tax rate for corporations, which remains at 35%. The
new tax rates for capital gains under the 1997 Tax Act described above apply to
distributions of capital gain by the Fund (if, as expected, the Fund designates
capital gain dividends as 28% rate gain distributions or 20% rate gain
distributions, in accor-
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<PAGE> 51
dance with its holding periods for the securities sold that generated such
capital gain dividends) as well as to sales and exchanges of shares in the Fund.
With respect to capital losses recognized on dispositions of shares held six
months or less where such losses are treated as long-term capital losses to the
extent of prior capital gain dividends received on such shares (see "Sale of
Shares" above), it is unclear how such capital losses offset the capital gains
referred to above. Shareholders should consult their own tax advisors as to the
application of the new capital gains rates to their particular circumstances.
GENERAL. The federal, state and local income tax discussion set forth above
is for general information only. Prospective investors should consult their
advisors regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
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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, five and ten year periods. Other total return quotations,
aggregate or average, over other time periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 5.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable CDSC has been paid.
The Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Since shares of the Fund were
offered at a maximum sales charge at 8.50% prior to June 12, 1989, actual Fund
total return would have been less than that computed on the basis of the current
maximum sales charge, all other things being equal. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund or to reflect
the fact no 12b-1 fees were incurred prior to October 1, 1989.
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<PAGE> 52
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated separately for Class A shares, Class B shares and
Class C shares. Class A share total return figures include the maximum sales
charge of 5.75%; Class B share and Class C share total return figures include
any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return,
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average Index, Standard & Poor's indices, NASDAQ Composite Index
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by 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 Fund
performance. The Fund will include performance data for each class of shares of
the Fund in any advertisement or information including performance data of the
Fund.
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<PAGE> 53
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.
The Fund's Annual Report and Semi-Annual Report contains additional
performance information. A copy of the Annual Report and Semi-Annual Report may
be obtained without charge by calling or writing the Fund at the telephone
number and address printed on the cover of this Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in Delaware on July 16, 1956 and was re-
incorporated by merger into a Maryland corporation on December 29, 1978. The
Fund was again reorganized as a business trust under the laws of Delaware as of
August 19, 1995 and adopted its current name at that time.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
The Fund currently offers three classes of shares, designated Class A shares,
Class B shares and Class C shares. Other classes may be established from time to
time in accordance with provisions of the Fund's Declaration of Trust. Each
class of shares represents an interest in the same assets of the Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee. Except as described herein, there are no conversion,
preemptive or other subscription rights. In the event of liquidation, each of
the shares of the Fund is entitled to its portion of all of the Fund's net
assets after all debt and expenses of the Fund have been paid. Since Class B
shares and Class C shares pay higher distribution fees and transfer agency
costs, the liquidation proceeds to Class B shareholders and Class C shareholders
are likely to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding share may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holder in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed information concerning the Fund is set forth in the
Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
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<PAGE> 54
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The fiscal year end of the Fund is December 31. The Fund sends to its
shareholders at least semi-annually reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited by
the Fund's independent accountants, is sent to shareholders each year. After the
end of each year, shareholders will receive federal income tax information
regarding dividends and capital gains distributions.
Shareholder inquiries should be directed to the Van Kampen American Capital
Harbor Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence.
For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and shareholder account information, dial (800) 847-2424. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
421-2833.
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APPENDIX -- RATINGS OF SENIOR SECURITIES
- ------------------------------------------------------------------------------
Description of Standard & Poor's Ratings Group ("S&P") and Moody's Investors
Service, Inc. ("Moody's") senior securities ratings.
MOODY'S CORPORATE BOND RATINGS:
1. LONG-TERM DEBT
AAA: Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuations 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 in 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 sometime in the future.
BAA: Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
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.
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CAA: Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, among other reasons, it may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.
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Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
PRIME-1:
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.
PRIME-2:
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment or 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.
PRIME-3:
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME:
Issuers rated Not Prime do not fall within any of the Prime rating categories.
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3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance the earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"AAA" and "AA" classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
BAA: An issue which is rated "BAA" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
BA: An issue which is rated "BA" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
C: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through B in its preferred stock rating system. 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.
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S&P'S CORPORATE BOND RATINGS:
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable Standard
& Poor's Ratings Group (S&P) rating symbols and their meanings (as published by
S&P) follows:
1. DEBT
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such information, or based on
other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the highest rated
issues only in small degrees.
A Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions than debt in the higher rated
categories.
</TABLE>
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<TABLE>
<S> <C>
BBB Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated
categories.
</TABLE>
SPECULATIVE GRADE
<TABLE>
<S> <C>
BB Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as
B having predominantly speculative characteristics with
CCC respect to capacity to pay interest and repay principal.
CC 'BB' indicates the least degree of speculation and 'C' the
C highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B'
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'BB' or
'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability
to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment
of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay
principal. The 'CCC' rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC The rating 'CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied 'CCC'
debt rating.
C The rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-'
debt rating. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.
</TABLE>
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<TABLE>
<S> <C>
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 if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from 'AA' to 'CCC' may
be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
NR Not rated.
Debt Obligations of issuers outside the United States and
its territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial
bank regulations issued by the Comptroller of the Currency,
bonds rated in the top four categories ('AAA', 'AA', 'A',
'BBB', commonly known as "investment grade" ratings) are
generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal
investments impose certain rating or other standards for
obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
</TABLE>
3. COMMERCIAL PAPER
An 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:
<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated 'A-1.'
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than
obligations carrying the higher designations.
</TABLE>
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<TABLE>
<S> <C>
B Issues rated 'B' are regarded as having only speculative
capacity for timely payment.
C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.
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.
A commercial paper rating is not a recommendation to
purchase, sell, or hold a security inasmuch as it does not
comment as to market price or suitability for a particular
investor. The ratings are based on current information
furnished to S&P by the issuer or obtained 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.
</TABLE>
4. VARIABLE RATE DEMAND BONDS
S&P assigns "dual" ratings to all debt issues that have a put or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for example
'AAA/A+'). With short-term demand debt, S&P's note rating symbols are used with
the commercial paper rating symbols (for example, 'SP-1+/A-1+).
5. NOTES
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assignment:
-- Amortization schedule (the longer the final maturity relative to other
maturities the more likely the issue is to be treated as a note).
-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
60
<PAGE> 63
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
6. PREFERRED STOCK
An S&P preferred stock rating is an assessment of the capacity and willingness
of an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements affecting creditors' rights.
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated 'AA' also qualifies as a
high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated 'AAA'.
A An issue rated 'A' is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated 'BBB' is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for
preferred stock in this category than for issues in the 'A'
category.
</TABLE>
61
<PAGE> 64
<TABLE>
<S> <C>
BB Preferred stock rated 'BB', 'B' and 'CCC' are regarded, on
B balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. 'BB'
indicates the lowest degree of speculation and 'CCC' the
highest degree of speculation. While such issues will
likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CC The rating 'CC' is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments, but that is
currently paying.
C A preferred stock rated 'C' is a non-paying issue.
D A preferred stock rated 'D' is a non-paying issue with the
issuer in default on debt instruments.
PLUS (+) or MINUS (-): To provide more detailed indications
of preferred stock quality, the ratings from 'AA' to 'CCC'
may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
NR This indicates that no rating has been requested, that
there is insufficient information on which to base a rating
or that S&P does not rate a particular type of obligation
as a matter of policy.
</TABLE>
A preferred stock rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the Issuer, and 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.
62
<PAGE> 65
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
FOR AUTOMATED TELEPHONE
SERVICES DIAL (800) 847-2424
VAN KAMPEN AMERICAN CAPITAL
HARBOR FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Harbor Fund
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street,
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
Harbor Fund
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 66
------------------------------------------------------------------------------
HARBOR FUND
------------------------------------------------------------------------------
P R O S P E C T U S
APRIL 30, 1998
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 67
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
Van Kampen American Capital Harbor Fund (the "Fund") is a diversified,
open-end management investment company. 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 a prospective investor should
consider before purchasing shares of the Fund. Investors should obtain and read
the Prospectus prior to purchasing shares of the Fund. A Prospectus may be
obtained without charge by writing or calling Van Kampen American Capital
Distributors, Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at
(800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Risk Factors................................................ B-3
Convertible Securities...................................... B-4
Repurchase Agreements....................................... B-4
Options, Futures Contracts and Related Options.............. B-5
Investment Restrictions..................................... B-10
Trustees and Officers....................................... B-12
Legal Counsel............................................... B-21
Investment Advisory Agreement............................... B-21
Distributor................................................. B-22
Distribution and Service Plans.............................. B-23
Transfer Agent.............................................. B-23
Portfolio Turnover.......................................... B-24
Portfolio Transactions and Brokerage........................ B-24
Determination of Net Asset Value............................ B-25
Purchase and Redemption of Shares........................... B-26
Exchange Privilege.......................................... B-28
Tax Status of the Fund...................................... B-29
Fund Performance............................................ B-29
Other Information........................................... B-30
Report of Independent Accountants........................... B-31
Financial Statements........................................ B-32
Notes to Financial Statements............................... B-45
</TABLE>
This Statement of Additional Information is dated April 30, 1998.
B-1
<PAGE> 68
GENERAL INFORMATION
The Fund was originally incorporated as the American Capital Harbor Fund,
Inc. as a Delaware corporation on July 16, 1956. The Fund was reincorporated by
merger into a Maryland corporation on December 29, 1978. As of August 19, 1995,
the Fund was reorganized as a series of Van Kampen American Capital Harbor Fund
(the "Trust"), a business trust organized under the laws of the State of
Delaware, and adopted its current name.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is an indirect wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and VKAC is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co., and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending.
VKAC equity fund philosophy is normally to remain fully invested and
diversified across many industries to achieve consistent long-term returns. VKAC
uses an investment process designed to attempt to produce consistently good
short-term results, which should help lead to superior long-term performance.
Fully Invested: Money invested in a VKAC stock fund will normally be fully
invested in the market to attempt to maximize the potential for long-term
returns. The importance of being fully invested can be illustrated by the
following comparison. By missing the 30 best months during the past 72 years,
the value of $1.00 invested in 1926 was $25.98 at the end of 1997, compared to
$1,828.33 for $1.00 that was invested for the entire period (Source: Micropal,
Inc.). Of course, past performance is no guarantee of future results.
Broadly Diversified: A broadly diversified portfolio usually reduces risk
and increases relative stability. Since VKAC's goal is consistency, a broadly
diversified portfolio across industries is emphasized. VKAC stock funds are
varied both in terms of the number of industries and the number of stocks within
each industry in which they invest. Generally, the stock funds invest in 12
broad economic sectors, and in many individual stocks within each sector.
Clearly Defined: The basic characteristics of VKAC funds are determined by
a pre-defined profile which remains constant over time.
B-2
<PAGE> 69
As of April 3, 1998, no person was known by the Fund to own beneficially or
to hold of record 5% or more of the outstanding Class A shares, Class B shares
or Class C shares of the Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE
NAME AND ADDRESS OWNERSHIP AT CLASS OF OF
OF HOLDER* APRIL 3, 1998 SHARES OWNERSHIP
---------------- ------------- -------- ----------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith, Inc. 5,354,172 B 5.30%
Mutual Fund Operations 335,169 C 13.24%
Attn Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Van Kampen American Capital Trust Company 7,224,282 A 29.05%
2800 Post Oak Blvd. 1,578,001 B 29.47%
Houston, TX 77056 47,313 C 14.11%
</TABLE>
- ---------------
* All holders were of record.
Van Kampen American Capital Trust Company acts as custodian for certain
employee benefit plans and independent retirement accounts.
RISK FACTORS
The following special considerations are additional risk factors associated
with the Fund's investments in lower rated debt securities.
1. Lower Rated Debt Securities Market. An economic downturn or increase in
interest rates is likely to have a greater negative effect on the market
for lower rated debt securities, the value of lower rated debt
securities in the Fund's portfolio, the Fund's net asset value and the
ability of the bonds' issuers to repay principal and interest, meet
projected business goals and obtain additional financing than on higher
rated securities. These circumstances also may result in a higher
incidence of defaults than with respect to higher rated securities. An
investment in this Fund may be considered more speculative than
investment in shares of a fund which invests only in higher rated debt
securities.
2. Sensitivity to Interest Rate and Economic Changes. Prices of lower rated
debt securities may be more sensitive to adverse economic changes or
corporate developments than higher rated investments. Debt securities
with longer maturities, which may have higher yields, may increase or
decrease in value more than debt securities with shorter maturities.
Market prices of lower rated debt securities structured as zero coupon
or pay-in-kind securities are affected to a greater extent by interest
rate changes and may be more volatile than securities which pay interest
periodically and in cash. Where it deems it appropriate and in the best
interests of Fund shareholders, the Fund may incur additional expenses
to seek recovery on a debt security on which the issuer has defaulted
and to pursue litigation to protect the interests of security holders of
its portfolio companies.
3. Liquidity and Valuation. Because the market for lower rated securities
may be thinner and less active than for higher rated securities, there
may be market price volatility for these securities and limited
liquidity in the resale market. Nonrated securities are usually not as
attractive to as many buyers as rated securities are, a factor which may
make nonrated securities less marketable. These factors may have the
effect of limiting the availability of the securities for purchase by
the Fund and may also limit the ability of the Fund to sell such
securities at their fair value either to meet redemption requests or in
response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower rated debt
securities, especially in a thinly traded market. To the extent the Fund
owns or may acquire illiquid or restricted lower rated securities, these
securities may involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties. Changes
in values of debt securities which the Fund owns will affect its net
asset value per share. If market quotations are not readily available
for the Fund's lower rated or nonrated securities, these securities will
be valued by a
B-3
<PAGE> 70
method that the Fund's Trustees believe accurately reflects fair value.
Judgment plays a greater role in valuing lower rated debt securities
than with respect to securities for which more external sources of
quotations and last sale information are available.
4. Congressional Action. New and proposed laws may have an impact on the
market for lower rated debt securities. The Adviser is unable at this
time to predict what effect, if any, the legislation may have on the
market for lower rated debt securities.
5. Taxation. Special tax considerations are associated with investing in
lower rated debt securities structured as zero coupon or pay-in-kind
securities. The Fund accrues income on these securities prior to the
receipt of cash payments. The Fund must distribute substantially all of
its income to its shareholders to qualify for pass-through treatment
under the tax laws and may, therefore, have to dispose of its portfolio
securities to satisfy distribution requirements.
CONVERTIBLE SECURITIES
A convertible security's position in a company's capital structure depends
upon its particular provisions. In the case of subordinated convertible
debentures, the holders' claims on assets and earnings are subordinated to the
claims of other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Every convertible security may be valued, on a theoretical basis, as if it
did not have a conversion privilege. Such theoretical value is determined by the
yield it provides in comparison with the yields of other securities of
comparable character and quality which do not have a conversion privilege. This
theoretical value, which will change with prevailing interest rates, the credit
standing of the issuer and other pertinent factors, is often referred to as the
"investment value," and represents the security's theoretical price support
level.
"Conversion value" is the amount a convertible security would be worth in
market value if it were to be exchanged for the underlying equity security
pursuant to its conversion privilege. Conversion value fluctuates directly with
the price of the underlying equity security, usually common stock. If, because
of low prices for the common stock, the conversion value is substantially below
the investment value, the price of the convertible security is governed
principally by the factors described in the preceding paragraph. If the
conversion value rises near or above its investment value, the price of the
convertible security generally will rise above its investment value and, in
addition, will sell at some premium over its conversion value. This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed income security with a possibility of capital appreciation
due to the conversion privilege. If this appreciation potential is not realized,
this premium may not be recovered. If the common stock should continue to
advance in price, the premium would become less significant and the convertible
security would fluctuate at a rate comparable to that of the common stock.
To the degree that the price of a convertible security rises above its
investment value because of a rise in price of the common stock, it is
influenced more by price fluctuations of the common stock and less by its
investment value. The price of a convertible security that is supported
principally by its conversion value will rise along with any increase in the
common stock, and such price generally will decline along with any decline in
the price of the common stock except that the security will receive additional
support as its price approaches investment value. A convertible security
purchased or held at a time when its price is influenced by its conversion value
will produce a lower yield than nonconvertible senior securities with comparable
investment values. Convertible securities may be purchased by the Fund at
varying price levels above their investment values or their conversion values in
keeping with the Fund's investment objectives.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks or broker-dealers
deemed to be creditworthy by the Adviser under guidelines approved by the
Trustees. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of
B-4
<PAGE> 71
purchase, thereby determining the yield during the purchaser's holding period.
Repurchase agreements are fully collateralized by the underlying debt securities
and are considered to be loans under the Investment Company Act of 1940, as
amended (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. The Fund does not bear the risk of a decline in value
of the underlying security unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss 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. The Fund will not
invest in repurchase agreements maturing in more than seven days if any such
investments, together with any other illiquid security held by the Fund, exceeds
10% of the value of its net assets. See "Investment Practices -- Repurchase
Agreements" in the Prospectus for further information.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities is likely to result in higher
portfolio turnover.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis, or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances the Fund collateralizes the option
by maintaining in a segregated account with the Fund's Custodian, cash or liquid
securities in an amount not less than the market value of the underlying
security, marked-to-market daily while the option is outstanding.
The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer of an option only if a liquid secondary
market exists for options of that series, but there is no assurance that such a
market will exist, particularly in the case of over-the-counter options, since
they can be closed out only with the other party to the transaction.
Alternatively, the Fund could purchase an offsetting option, which would not
close out its position as a writer, but would provide an asset of equal value to
its obligation under the option written. If
B-5
<PAGE> 72
the Fund is not able to enter into a closing purchase transaction or to purchase
an offsetting option with respect to an option it has written, it will be
required to maintain the securities subject to the call or the collateral
underlying the put until a closing purchase transaction can be entered into (or
the option is exercised or expires) even though it might not be advantageous to
do so.
Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of the
Fund's assets generally. Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDEXES
Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive cash, which amount will depend upon the closing level of the
stock index upon which the option is based being greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the options. The
amount of cash received will be the difference between the closing price of the
index and the exercise price of the option, multiplied by a specified dollar
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indices are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
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."
B-6
<PAGE> 73
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures contracts
can be purchased with respect to the Standard & Poor's 500 Stock Index on the
Chicago Mercantile Exchange ("CME"), the New York Stock Exchange Composite Index
on the New York Futures Exchange and the Value Lines Stock Index on the Kansas
City Board of Trade. Differences in the stocks included in the indices may
result in differences in correlation of the futures contracts with movements in
the value of the securities being hedged.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract
serves as a temporary substitute for the purchase of individual securities,
which may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs. Ordinarily, transaction costs associated with
futures transactions are lower than the transaction costs which would be
incurred in the purchase or sale of the underlying securities.
The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures
B-7
<PAGE> 74
and options on United States devised indices of foreign stocks are also being
developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities 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.
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
B-8
<PAGE> 75
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 exceeds five percent 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 may purchase and write options on futures contracts. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put) at a specified exercise
price at any time during the option period. As a writer of an option on a
futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as, 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 level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS
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 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.
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.
B-9
<PAGE> 76
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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which, along with its investment objective, may not be changed without approval
by the vote of a majority of its outstanding voting shares, which is defined by
the 1940 Act as the lesser of (i) 67% or more of the voting securities present
at the meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. These restrictions provide that the Fund shall not:
1. Sell short or buy on margin, but the Fund may engage in transactions in
options, futures contracts and related options and may make margin
deposits and payments in connection therewith;
2. Primarily engage in the underwriting or distribution of securities;
3. Make any investment in real estate, commodities or commodities
contracts, or in any security about which information is not available
with respect to history, management, assets, earnings, and income of
the issuer; however, the Fund is not prohibited from investing in
securities issued by a real estate investment trust, and the Fund is
not prohibited from entering into transactions in futures contracts or
related options;
4. Make any investment which involves promotion or business management by
the Fund or which would subject the Fund to unlimited liability;
5. Invest more than 5% of its assets in the securities of any one issuer
(except the United States 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 Securities and Exchange
Commission (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;
6. Invest more than 25% of its assets in securities issued by companies in
any one industry;
7. Invest in companies for the purpose of exercising control, 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;
8. Make loans except that the Fund may invest up to 25% of the Fund's
total assets in repurchase agreements;
9. Borrow in excess of 5% of its assets valued at market, or 10% of its
assets valued at cost, and then only from banks as a temporary measure
for extraordinary or emergency purposes; or pledge, encumber, transfer
or assign its assets except in connection with any such borrowing and
in amounts not in excess of the dollar amount borrowed. Notwithstanding
the foregoing, the Fund may engage in transactions in options, futures
contracts and related options, segregate or deposit assets to cover or
secure options written, and make margin deposits or payments for
futures contracts and related options;
10. 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 the (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;
B-10
<PAGE> 77
11. Engage in the underwriting of securities of other issuers, except that
the Fund may sell an investment position even though it may be deemed
to be an underwriter as that term is defined under the Securities Act
of 1933; or
12. 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".
The Fund is subject to the following policies, which may be amended by its
Trustees. The Fund shall not:
1. Invest more than 5% of its total assets in securities of unseasoned
issuers which have been in operation directly or through predecessors
for less than three years except to the extent permitted by the (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;
2. Pledge, mortgage or hypothecate its portfolio securities to the extent
that at any time the percentage of pledged securities plus the sales
load will exceed 10% of the offering price of the Fund's shares.
Notwithstanding the foregoing, the Fund may engage in transactions in
options, futures contracts and related options, segregate or deposit
assets to cover or secure options written, and make margin deposits or
payments for futures contracts and related options;
3. Purchase any warrants or rights unless acquired in units or attached to
other securities;
4. Invest in interests in oil, gas, or other mineral exploration or
development programs, except that it may acquire securities of public
companies which themselves are engaged in such activities;
5. Invest more than 15% of the value of its total assets in securities of
foreign issuers; or
6. Invest more than 10% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements that have
a maturity of longer than seven days with respect to the 10% limit, the
Fund may not acquire any private placement if it would cause more than
5% of the value of its net assets to be invested in private placements
and other assets not having readily available market quotations, as
determined at the time the Fund agrees to any such acquisition.
Excluded from this limitation are Rule 144A securities determined to be
liquid by the Trustees or by the Adviser pursuant to guidelines
established by the Trustees and securities of other investment
companies purchased by the Fund to the extent permitted by the (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.
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<PAGE> 78
TRUSTEES AND OFFICERS
The tables below list the trustees and officers of the Fund and other
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with VK/AC
Holding, Inc. ("VKAC Holding"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital" or "VKAC"), Van Kampen American Capital Investment Advisory
Corp. ("Advisory Corp."), Van Kampen American Capital Asset Management, Inc.
("Asset Management"), Van Kampen American Capital Distributors, Inc., the
distributor of the Fund's shares (the "Distributor"), Van Kampen American
Capital Advisors Corp., Van Kampen Merritt Equity Advisors Corp., Van Kampen
American Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van
Kampen American Capital Record Keeping Services, Inc., American Capital
Contractual Services, Inc., Van Kampen American Capital Trust Company, Van
Kampen American Capital Exchange Corporation, and ACCESS Investors Services
Inc., the Fund's transfer agent ("ACCESS"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers (excluding the Van Kampen American Capital
Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley Dean
66th Floor Witter & Co. Mr. DeMartini is a Director of InterCapital
New York, NY 10048 Funds, Dean Witter Distributors, Inc. and Dean Witter
Date of Birth: 10/12/52 Trust Company. Trustee of the TCW/DW Funds. Director of
the National Healthcare Resources, Inc. Formerly Vice
Chairman of the Board of the National Association of
Securities Dealers, Inc. and Chairman of the Board of the
Nasdaq Stock Market, Inc. Trustee/Director of each of the
funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
</TABLE>
B-12
<PAGE> 79
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Investment Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of VKAC, Chairman and a Director
2800 Post Oak Blvd. of the Advisers and the Distributor. Chairman and a
Houston, TX 77056 Director of ACCESS. Director or officer of certain other
Date of Birth: 10/19/39 subsidiaries of VKAC. Chairman of the Board of Governors
and the Executive Committee of the Investment Company
Institute. Prior to November 1996, President, Chief
Executive Officer and a Director of VKAC Holding.
Trustee/ Director of each of the funds in the Fund
Complex and other funds advised by the Advisers or Van
Kampen American Capital Management, Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management, Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management,
Inc. Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen American Capital
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex, and other open-end and closed-end funds
advised by the Advisers or Van Kampen American Capital
Management, Inc.
</TABLE>
- ---------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter & Co. or its affiliates.
B-13
<PAGE> 80
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President Executive Vice President and a Director of
Date of Birth: 05/20/42 VKAC and VK/AC Holding, Inc. President,
Chief Operating Officer and a Director of
the Advisers, Van Kampen American Capital
Advisors, Inc., and Van Kampen American
Capital Management, Inc. President and a
Director of Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, he
was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to
November 1996, Executive Vice President and
a Director of VKAC Holding. Prior to July
of 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds
in the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers,
Date of Birth: 06/25/56 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Prior to July of 1996, Mr.
Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of
McCarthy, Crisanti & Maffei, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
</TABLE>
B-14
<PAGE> 81
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VKAC and VK/AC
Holding, Inc. Mr. Nyberg is also Executive
Vice President, General Counsel and a
Director of Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel, Assistant Secretary and a
Director of the Advisers and the
Distributor, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American
Capital Exchange Corporation, American
Capital Contractual Services, Inc. and Van
Kampen American Capital Trust Company.
Executive Vice President, General Counsel
and Assistant Secretary of ACCESS. Director
or officer of certain other subsidiaries of
VKAC. Prior to June of 1997, Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to April of 1997,
he was Executive Vice President, General
Counsel and Director of Van Kampen Merritt
Equity Advisors Corp. Prior to July of
1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc.
and Executive Vice President and General
Counsel of VCJ Inc. Prior to September of
1996, he was General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers,
Date of Birth: 04/20/42 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Vice President of each of
the funds in the Fund Complex and certain
other investment companies advised by the
Advisers or their affiliates.
Paul R. Wolkenberg.......... Vice President Executive Vice President and Director of
Date of Birth: 11/10/44 VKAC, and VK/AC Holding Inc. Executive Vice
President of the AC Adviser and the
Distributor. President and a Director of
ACCESS. President and Chief Operating
Officer of Van Kampen American Capital
Record Keeping Services, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
B-15
<PAGE> 82
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers and
Date of Birth: 01/11/56 Financial Officer Van Kampen American Capital Management,
Inc. Vice President and Chief Financial
Officer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or their affiliates.
Nicholas Dalmaso............ Assistant Secretary Associate General Counsel and Assistant
Date of Birth: 03/01/65 Secretary of VKAC. Vice President,
Associate General Counsel and Assistant
Secretary of the Advisers, the Distributor,
Van Kampen American Capital Advisors, Inc.
and Van Kampen American Capital Management,
Inc. Assistant Secretary of each of the
funds in the Fund Complex and other
investment companies advised by the
Advisers or their affiliates.
Huey P. Falgout, Jr......... Assistant Secretary Vice President and a Senior Attorney of
Date of Birth: 11/15/63 VKAC. Vice President and Assistant
Secretary of the Advisers, the Distributor,
ACCESS, Van Kampen American Capital
Management, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation and
Van Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
B-16
<PAGE> 83
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC and
VKAC Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary of the
Advisers, the Distributor, ACCESS American
Capital Contractual Services, Inc., Van
Kampen American Capital Management, Inc.,
Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VKAC
System, Inc., Van Kampen American Capital
Record Keeping Services, Inc. and Van
Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and
Van Kampen Merritt Holdings Corp. Prior to
September of 1996, Mr. Martin was Deputy
General Counsel and Secretary of McCarthy,
Crisanti & Maffei, Inc., and prior to July
of 1996, he was Senior Vice President,
Deputy General Counsel and Secretary of VSM
Inc. and VCJ Inc. Assistant Secretary of
each of the funds in the Fund Complex and
other investment companies advised by the
Advisers or their affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or their affiliates.
Steven M. Hill.............. Assistant Treasurer Vice President of the Advisers. Assistant
Date of Birth: 10/16/64 Treasurer of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or their
affiliates.
Michael Robert Sullivan..... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 64 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of the Advisers, the
Distributor, ACCESS, Van Kampen
B-17
<PAGE> 84
American Capital or Morgan Stanley Dean Witter & Co. (each a "Non-Affiliated
Trustee") is compensated by an annual retainer and meeting fees for services to
the funds in the Fund Complex. Each fund in the Fund Complex (except the money
market series of the MS Funds) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows trustees/directors to defer receipt of their
compensation and earn a return on such deferred amounts. Deferring compensation
has the economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex (except the money
market series of the MS Funds) provides a retirement plan to its Non-Affiliated
Trustees that provides Non-Affiliated Trustees with compensation after
retirement, provided that certain eligibility requirements are met as more fully
described below.
The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.
For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
B-18
<PAGE> 85
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
B-19
<PAGE> 86
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1991 $1,480 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 1,480 3,141 60,000 111,197
R. Craig Kennedy* 1995 1,480 2,229 60,000 111,197
Jack E. Nelson* 1995 1,480 15,820 60,000 104,322
Jerome L. Robinson 1995 1,480 32,020 15,750 107,947
Phillip B. Rooney* 1997 1,110 0 60,000 74,697
Dr. Fernando Sisto* 1973 1,480 60,208 60,000 111,197
Wayne W. Whalen* 1995 1,480 10,788 60,000 111,197
</TABLE>
- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.
(1) Mr. Robinson is not designated by an asterisk because he is currently not a
member of the Board of Trustees, but was a member of the Board of Trustees
during the Fund's most recently completed fiscal year. Mr. Robinson retired
from the Board of Trustees on December 31, 1997. Trustees not eligible for
compensation are not included in the compensation table.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended December 31, 1997. The
following trustees deferred compensation from the Fund during the fiscal
year ended December 31, 1997: Mr. Branagan, $1,480; Ms. Heagy, $1,480; Mr.
Kennedy, $740; Mr. Nelson, $1,480; Mr. Robinson, $1,480; Mr. Rooney, $740;
Dr. Sisto, $740; and Mr. Whalen, $1,480. 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 December 31, 1997 is
as follows: Mr. Branagan, $2,218; Dr. Caruso, $7,498; Mr. Gaughan, $535; Ms.
Heagy, $3,660; Mr. Kennedy, $2,352; Mr. Lipshie, $3,007; Mr. Miller, $2,295;
Mr. Nelson, $4,249; Mr. Rees, $23,668; Mr. Robinson, $4,260; Mr. Rooney,
$746; Dr. Sisto, $17,402; Mr. Vernon, $3,979; and Mr. Whalen, $4,245. The
deferred compensation plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for each of the current trustees for the funds' respective
fiscal years ended in 1997. The retirement plan is described above the
Compensation Table.
(4) For Mr. Robinson this is the sum of the actual annual benefits payable by
the operating investment companies in the Fund Complex as of the date of his
retirement for each year of the 10-year period since his retirement. For the
remaining trustees, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1997 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
B-20
<PAGE> 87
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1997. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$268,447 during the calendar year ended December 31, 1997.
As of April 3, 1998, the trustees and officers of the Fund as a group owned
less than 1% of the Fund's outstanding shares.
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois).
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser obtains and evaluates
economic, statistical and financial information to formulate and implement the
Fund's investment programs. The Adviser also furnishes at no cost to the Fund
(except as noted herein) the services of sufficient executive and clerical
personnel for the Fund as are necessary to prepare registration statements,
prospectuses, shareholder reports, and notices and proxy solicitation materials.
In addition, the Adviser furnishes at no cost to the Fund the services of the
Fund's President, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction. Charges are
allocated among the investment companies advised or subadvised by the Adviser. A
portion of these amounts were paid to the Adviser or its parent in reimbursement
of personnel, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services provided by the Adviser are at
cost. The Fund also pays service fees, distribution fees, custodian fees, legal
and auditing fees, the costs of reports to shareholders and all other ordinary
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 acts in good faith without negligence or misconduct.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at the annual
rate of: 0.55% on the first $350 million average net assets; 0.50% on the next
$350 million of average net assets; 0.45% on the next $350 million of average
net assets; and 0.40% on the excess over $1.05 billion of average net assets.
The Fund's average net asset value for purposes of computing the advisory
fee is determined by taking the average of all of the determinations of net
asset value for each business day during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser 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 VK/AC
Holding, Inc., in connection with the purchase and sale of portfolio investments
of the Fund, less any direct expenses incurred by such subsidiary of VK/AC
Holding, Inc. in connection with obtaining such payments. The Adviser agrees to
use its best efforts to recapture tender solicitation fees and exchange offer
fees for the
B-21
<PAGE> 88
Fund's benefit, and to advise the Trustees of the Fund of any other commissions,
fees, brokerage or similar payments which may be possible under applicable laws
for the Adviser or a person under common control with the Adviser or any other
direct or indirect majority-owned subsidiary of VK/AC Holding, Inc. to receive
in connection with the Fund's portfolio transactions or other arrangements which
may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where the Fund's shares are
qualified for sale, the compensation due the Adviser for such fiscal year shall
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 also provides that the Adviser shall
not be liable to the Fund for any actions or omissions if it acted in good faith
without negligence or misconduct.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on not more than 60 days' nor less than 30 days' written notice.
During the fiscal years ended December 31, 1995, 1996 and 1997, the Adviser
received $2,494,437, $2,481,240 and $2,510,215, respectively, in advisory fees
from the Fund. For such periods the Fund paid $91,039, $128,687 and $90,049,
respectively, for accounting services. A substantial portion of these amounts
was paid to the Adviser in reimbursement of personnel, facilities and equipment
costs attributable to the provision of accounting services to the Fund.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers. The Distributor's obligation is an agency or "best efforts"
arrangement under which the Distributor is required to take and pay for only
such shares of the Fund as may be sold to the public. The Distributor is not
obligated to sell any stated number of shares. The Distributor bears the cost of
printing (but not typesetting) prospectuses used in connection with this
offering and certain other costs, including the cost of supplemental sales
literature and advertising. The Distribution and Service Agreement is renewable
from year to year if approved (a) by the Fund's Trustees or by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of Trustees who are not parties to the Distribution and
Service Agreement or interested persons of any party, by votes cast in person at
a meeting called for such purpose. The Distribution and Service Agreement
provides that it will terminate if assigned, and that it may be terminated
without penalty by either party on 90 days' written notice. Total underwriting
commissions on the sale of shares of the Fund for the last three fiscal periods
are shown in the chart below. Advantage Capital Corporation is a former
affiliated dealer of the Fund.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
AMOUNTS RECEIVED BY
TOTAL UNDERWRITING RETAINED ADVANTAGE CAPITAL
COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------ -------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1995....... $259,825 $35,406 $96,613
Fiscal Year Ended December 31, 1996....... $415,583 $48,521 N/A
Fiscal Year Ended December 31, 1997....... $333,230 $48,278 N/A
</TABLE>
B-22
<PAGE> 89
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through an agreement (the "Distribution and Service Agreement") with the
Distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
For the fiscal year ended December 31, 1997, the Fund's aggregate expenses
under the Plans for Class A shares were $802,870 or 0.23% of the Class A shares'
average net assets. Such expenses were paid to reimburse the Distributor for
payments made to authorized dealers for servicing Fund shareholders and for
administering the Plans. For the fiscal year ended December 31, 1997, the Fund's
aggregate expenses under the Plans for Class B shares were $816,632 or 1.00% of
the Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $613,663 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class B shares of
the Fund and $204,969 for fees paid to financial intermediaries for servicing
Class B shareholders and administering the Plans. For the fiscal year ended
December 31, 1997, the Fund's aggregate expenses under the Plans for Class C
shares were $40,469 or 1.00% of the Class C shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$13,223 for commissions and transaction fees paid to financial intermediaries in
respect of sales of Class C shares of the Fund and $27,246 for fees paid to
financial intermediaries for servicing Class C shareholders and administering
the Plans.
The Distributor has entered into agreements with Merrill Lynch ("Merrill")
under which the Fund shall be offered pursuant to the Merrill Program. Trustees
and other fiduciaries of retirement plans seeking to invest in multiple fund
families through broker-dealer retirement plan alliance programs should contact
Merrill for further information concerning the Merrill Program including, but
not limited to, minimum size and operational requirements.
TRANSFER AGENT
During the fiscal year ended December 31, 1995, 1996 and 1997, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees, determined on a cost plus profit basis, aggregating
B-23
<PAGE> 90
$776,543, $771,539 and $543,769 respectively, for these services. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
PORTFOLIO TURNOVER
The Fund's annual portfolio turnover rate is shown in the table of
Financial Highlights in the Prospectus. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for a fiscal year by the average monthly value of the portfolio securities
during such fiscal year. Securities maturing in one year or less at the time of
acquisition are not included in this computation. The portfolio turnover rate
may vary greatly from year to year and within a year. Greater portfolio activity
increases the Fund's transaction costs, including brokerage commissions. To the
extent turnover results in realization of gains on securities held less than six
months, shareholders are subject to taxes at ordinary income rates.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions, if any, on such transactions. It is the policy of the Adviser to
seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services, as described below,
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund and of the other Van Kampen
American Capital mutual funds as a factor in the selection of firms to execute
portfolio transactions for the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services 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).
Pursuant to provisions of the Advisory Agreement, the Fund's Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Fund. The
Adviser undertakes that such higher commissions will not be paid by the Fund
unless (a) the Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Adviser's overall responsibilities with respect to the accounts as to which
it exercises investment discretion, (b) such payment is made in compliance with
the provisions of Section 28(e) and other applicable state and federal laws, and
(c) in the opinion of the Adviser, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the Fund over the long term.
The investment advisory fee paid by the Fund under the investment advisory
agreement is not reduced as a result of the Adviser's receipt of research
services.
B-24
<PAGE> 91
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Fund. In the opinion of the Adviser, the
benefits from research services to each of the accounts, including the Fund,
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Adviser are the relative net assets, 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.
During the year ended December 31, 1997, the Fund paid $209,096 in
brokerage commissions on transactions totalling $120,989,381 to brokers selected
primarily on the basis of research services provided to the Adviser.
Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter & Co.
("Dean Witter") became an affiliate of the Adviser. The negotiated commission
paid to an affiliated broker on any transaction would be comparable to that
payable to a non-affiliated broker in a similar transaction.
The Fund paid the following commissions to these brokers during the periods
shown:
<TABLE>
<CAPTION>
MORGAN DEAN
BROKERS STANLEY WITTER
-------- ------- ------
<S> <C> <C> <C>
Commissions Paid:
Fiscal 1995..................................... $551,390 $48,228 0
Fiscal 1996..................................... 480,359 26,796 0
Fiscal 1997..................................... 568,960 0 0
Fiscal 1997 Percentages:
Commissions with affiliates to total
commissions................................... 0 0
Value of brokerage transactions with affiliates
to total brokerage transactions............... 0 0
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each
business day on which the Exchange is open. The net asset value of Fund shares
is computed by dividing the value of all securities plus other assets, less
liabilities by the number of shares outstanding, and adjusting to the nearest
cent per share.
Such computation is made by using prices as of the close of trading on the
Exchange and (i) valuing securities traded on a national securities exchange at
the last reported sale price, or if there has been no sale that day, at the last
reported bid quotations (except options for which the last sale price is not
available are valued at the mean between the bid and asked prices), (ii) valuing
over-the-counter securities for which the last sale price is available from the
National Association of Securities Dealers Automated Quotations ("NASDAQ") at
that price, (iii) valuing all other over-the-counter securities for which market
quotations are available at the most recently quoted bid price supplied by
NASDAQ or broker-dealers (except unlisted convertible securities, which are
valued at the higher of their bid price or the value of the securities issuable
B-25
<PAGE> 92
upon conversion), and (iv) valuing any securities for which market quotations
are not readily available and any other assets at fair value as determined in
good faith by the Adviser based on procedures approved by the Trustees of the
Fund. Short-term investments are valued in the manner described in the notes to
the financial statements included in this Statement of Additional Information.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."
INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application accompanying the Prospectus and forwarding the application, through
the authorized dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of at least $500 per class of shares, in
the form of a check payable to the Fund, must accompany the application. This
minimum may be waived by the Distributor for plans involving continuing
investments. Minimum subsequent investments of at least $25 per class of shares
may be mailed directly to ACCESS. All such investments are made at the public
offering price of Fund shares next computed following receipt of payment by
ACCESS. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by ACCESS to the investor's authorized
dealer.
In processing applications and investments, ACCESS acts as agent for the
investor and for the authorized dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount" made pursuant to the Letter of Intent and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal as if it were a single
investment. Escrowed shares totalling 5% of the dollar amount of the Letter of
Intent are held by ACCESS in the name of the shareholder. The effective date of
a Letter of Intent may be back-dated up to 90 days in order that any investments
made during this 90-day period, valued at the investor's cost, can become
subject to the Letter of Intent. The Letter of Intent does not obligate the
investor to purchase the indicated amount. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the investor is required
to pay the difference between sales charges otherwise applicable to the
purchases made during this period and sales charges actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the investor in shares of the Fund, the
amount of excess sales charges, if any, paid during the thirteen-month period.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefore may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Fund to determine fairly the value of its net assets; or (d)
the SEC, by order, so permits.
B-26
<PAGE> 93
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For investments in the amount of $1,000,000 or more of Class A shares of
the Fund ("Qualified Purchaser"), the front-end sales charge will be waived and
a contingent deferred sales charge ("CDSC -- Class A") of 1.00% is imposed in
the event of certain redemptions within one year of the purchase. If a CDSC
- -- Class A is imposed upon redemption, the amount of the CDSC -- Class A will be
equal to the lesser of 1.00% of the net asset value of the shares at the time of
purchase or 1.00% of the net asset value of the shares at the time of
redemption.
The CDSC -- Class A will be imposed only if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. No CDSC --
Class A will be imposed on exchanges between funds. For purposes of the
CDSC -- Class A, when shares of one fund are exchanged for shares of another
fund, the purchase date for the shares of the fund exchanged into will be
assumed to be the date on which shares were purchased in the fund from which the
exchange was made. If the exchanged shares themselves are acquired through an
exchange, the purchase date is assumed to carry over from the date of the
original election to purchase shares subject to a CDSC -- Class A rather than a
front-end load sales charge. In determining whether a CDSC -- Class A is
payable, it is assumed that shares held the longest are the first to be
redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of the Participating Funds described in
the Prospectus.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
As described in the Prospectus under "Purchase of Shares," redemptions of
Class B shares and Class C shares will be subject to a CDSC. The CDSC -- Class B
and C may be waived on redemptions of Class B shares and Class C shares in the
circumstances described below:
(a) 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 the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b)Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of the Van Kampen
American Capital funds; in such event, as described below, the Fund will "tack"
the period for which the original shares were held onto 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 will
be waived on any redemption which results from the return
B-27
<PAGE> 94
of an excess contribution pursuant to Section 408(d)(4) or (5) of the Code, the
return of excess deferral amounts pursuant to Code Section 401(k)(8) or
402(g)(2), or from the death or disability of the employee (see Code Section
72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be waived on any
minimum distribution required to be distributed in accordance with Code Section
401(a)(9).
The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan (the
"Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC -- Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d)Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and
Class C upon such involuntary redemption.
(e)Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
180 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest, with
credit for any CDSC -- Class C paid on the redeemed shares, any portion or all
of his or her redemption proceeds (plus that amount necessary to acquire a
fractional share to round off his or her purchase to the nearest full share) in
shares of the Fund, provided that the reinvestment is effected within 180 days
after such redemption and the shareholder has not previously exercised this
reinvestment privilege with respect to Class C shares of the Fund. Shares
acquired in this manner will be deemed to have the original cost and purchase
date of the redeemed shares for purposes of applying the CDSC -- Class C to
subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. Van Kampen American Capital and its
subsidiaries, including ACCESS, and the Fund employ procedures considered by
them to be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are
B-28
<PAGE> 95
employed, neither Van Kampen American Capital, ACCESS, nor the Fund will be
liable for following telephone instructions which it reasonably believes to be
genuine. Van Kampen American Capital, ACCESS and the Fund may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sale charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
TAX STATUS OF THE FUND
The Fund and each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if, among other things, it fails to distribute net capital gains, or if
its annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.
FUND PERFORMANCE
The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for (i) the one year period ended
December 31, 1997 was 10.17%; (ii) the five year period ended December 31, 1997
was 9.96%; and (iii) the ten year period ended December 31, 1997 was 11.67%. The
average annual total return (computed in the manner described in the Prospectus)
for Class B shares of the Fund for (i) the one year period ended December 31,
1997 was 10.99%; (ii) the five year period ended December 31, 1997 was 10.19%;
and (iii) the six year and one half month period ended December 31, 1997 was
10.77%. The average annual total return (computed in the manner described in the
Prospectus) for Class C shares of the Fund for (i) the one year period ended
December 31, 1997 was 14.96%; and (ii) the four year and two month period ended
December 31, 1997 was 9.63%. 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
objective and policies as well as the risks incurred in the Fund's investment
practices. Future results will be affected by changes in the general level of
prices of securities available for purchase and sale by the Fund. The past one
year, five year and ten year periods have been ones of fluctuating stock prices.
Total return is computed separately for Class A shares, Class B shares and
Class C shares.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(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
B-29
<PAGE> 96
return. Such illustrations may be in the form of charts or graphs and will not
be based on historical returns experienced by the Funds.
The Fund seeks to remain fully invested and diversified across many
industries to achieve consistent long-term performance. From time to time
marketing materials may provide a portfolio manager update, an Adviser update or
discuss general economic conditions and outlooks. The top 10 holdings of the
Fund may also be listed in marketing pieces. Materials may also mention how Van
Kampen American Capital believes the Fund compares relative to other Van Kampen
American Capital funds. Materials may also discuss the Dalbar Financial Services
study from 1984 to 1994 which examined 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 if shareholders purchased
their funds in direct or sales force distribution channels. The study showed
that investors working with a professional representative have tended over time
to earn higher returns than those who invested directly. The Fund will also be
marketed on the Internet.
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 200 East Randolph Drive,
Chicago, IL. 60601, the independent accountants for the Fund, performs an annual
audit of the Fund's financial statements.
B-30
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital Harbor
Fund (the "Fund") at December 31, 1997, and the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 29, 1998
B-31
<PAGE> 98
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS 50.0%
CONSUMER DISTRIBUTION 10.2%
$ 8,500 Costco Cos, Inc., 144A-Private Placement (a).. * 08/19/17 $ 5,057,500
4,300 CUC International, Inc........................ 3.000% 02/15/02 5,364,250
4,700 Home Depot, Inc............................... 3.250 10/01/01 6,274,500
2,925 InaCom Corp................................... 6.000 06/15/06 3,948,750
4,700 Men's Warehouse, Inc.......................... 5.250 03/01/03 5,546,000
3,000 Pier 1 Imports, Inc........................... 5.750 10/01/03 5,760,000
4,700 Rite Aid Corp., 144A-Private Placement (a).... 5.250 09/15/02 5,064,250
4,500 Staples, Inc., 144A-Private Placement (a)..... 4.500 10/01/00 5,962,500
4,500 U.S. Office Products Co....................... 5.500 05/15/03 4,185,000
----------
47,162,750
----------
CONSUMER NON-DURABLES 0.7%
3,100 Loews Corp.................................... 3.125 09/15/07 3,100,000
----------
CONSUMER SERVICES 8.3%
9,240 Corestaff, Inc................................ 2.940 08/15/04 7,692,300
2,125 Hilton Hotels Corp............................ 5.000 05/15/06 2,332,187
5,900 Interpublic Group Cos Inc., 144A-Private
Placement (a)................................. 1.800 09/16/04 4,852,750
3,700 Marriott International, Inc., LYON............ * 03/25/11 2,405,000
5,885 National Data Corp............................ 5.000 11/01/03 5,723,163
10,250 News America Holdings, Inc., LYON............. * 03/11/13 4,817,500
5,000 Omnicom Group, Inc., 144A-Private
Placement (a)................................. 4.250 01/03/07 6,925,000
2,000 Personnel Group of America, Inc., 144A-Private
Placement (a)................................. 5.750 07/01/04 2,240,000
3,000 Times Mirror Co., LYON,
144A-Private Placement (a).................... * 04/15/17 1,260,000
----------
38,247,900
----------
ENERGY 5.0%
4,050 Consolidated Natural Gas Co................... 7.250 12/15/15 4,647,375
1,500 Nabors Industries, Inc........................ 5.000 05/15/06 2,692,500
2,100 Offshore Logistics, Inc., 144A-Private
Placement (a)................................. 6.000 12/15/03 2,415,000
</TABLE>
See Notes to Financial Statements
B-32
<PAGE> 99
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ENERGY (CONTINUED)
$ 1,700 Parker Drilling Co............................ 5.500% 08/01/04 $ 1,806,250
5,500 Pennzoil Co. (Convertible into 76,518 Chevron
Oil Co. common shares)........................ 4.750 10/01/03 7,370,000
2,500 SFP Pipeline Holdings, Inc.................... 11.163 08/15/10 4,045,608
-----------
22,976,733
-----------
FINANCE 3.5%
3,240 Berkshire Hathaway, Inc....................... * 12/02/01 5,236,650
STRYPES Merrill Lynch, 125,500 shares (Convertible into
102,860 Cox Communication common shares)...... 6.000 06/01/99 4,236,481
STRYPES Merrill Lynch, 60,000 shares (Convertible into
49,998 MGIC Investment Corp. common shares)... 6.500 08/15/98 6,636,091
-----------
16,109,222
-----------
HEALTHCARE 11.4%
4,300 Alternative Living Services, Inc.............. 5.250 12/15/02 4,966,500
16,000 Alza Corp., LYON.............................. * 07/14/14 7,360,000
5,000 Athena Neurosciences, Inc., 144A-Private
Placement (a)................................. 4.750 11/15/04 5,100,000
4,000 Dura Pharmaceuticals, Inc..................... 3.500 07/15/02 4,460,000
4,000 FPA Medical Management, Inc................... 6.500 12/15/01 4,090,000
4,800 Omnicare, Inc., 144A-Private Placement (a) 5.000 12/01/07 4,896,000
4,800 Phycor, Inc................................... 4.500 02/15/03 4,680,000
2,400 Renal Treatment Centers, Inc.................. 5.625 07/15/06 2,895,000
1,425 Renal Treatment Centers, Inc., 144A-Private
Placement (a)................................. 5.625 07/15/06 1,718,906
15,000 Roche Holdings, Inc., 144A-Private
Placement (a)................................. * 05/06/12 6,937,500
4,500 Sunrise Assisted Living, Inc., 144A-Private
Placement (a)................................. 5.500 06/15/02 5,827,500
-----------
52,931,406
-----------
PRODUCER MANUFACTURING 4.0%
2,700 Robbins and Myers, Inc........................ 6.500 09/01/03 4,158,000
5,000 Thermo Electron Corp., 144A-Private
Placement (a)................................. 4.250 01/01/03 6,225,000
1,945 U.S. Filter Corp.............................. 4.500 12/15/01 2,013,075
5,540 USA Waste Services, Inc....................... 4.000 02/01/02 6,121,700
-----------
18,517,775
-----------
</TABLE>
See Notes to Financial Statements
B-33
<PAGE> 100
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY 5.7%
$ 2,475 American Residential Services, Inc.......................... 7.250% 04/15/04 $ 2,196,563
1,000 Comverse Technology, Inc.................................... 5.750 10/01/06 1,073,750
3,650 Comverse Technology, Inc., 144A-Private
Placement (a)............................................... 5.750 10/01/06 3,919,188
3,500 Dovatron International, Inc., 144A-Private
Placement (a)............................................... 6.000 10/15/02 5,385,625
1,750 EMC Corp.................................................... 3.250 03/15/02 2,371,250
7,750 Hewlett Packard Co., LYON, 144A-Private
Placement (a)............................................... * 10/14/17 4,049,375
3,700 Solectron Corp., 144A-Private Placement (a)................. 6.000 03/01/06 5,078,250
1,200 Titan Corp.................................................. 8.250 11/01/03 2,148,000
-----------
26,222,001
-----------
TRANSPORTATION 1.2%
1,800 Halter Marine Group, Inc., 144A-Private
Placement (a)............................................... 4.500 09/15/04 2,016,000
3,365 Seacor Holdings, Inc........................................ 5.375 11/15/06 3,836,100
----------
5,852,100
----------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS 50.0%...... 231,119,887
-----------
FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS 1.6%
3,400 Deutsche Bank Finance (Netherlands),
144A-Private Placement (Convertible into
51,511 Daimler-Benz common shares)(a)....................... * 02/12/17 1,513,000
2,100 IMAX Corp. (Canada), 144A-Private
Placement (a)............................................... 5.750 04/01/03 2,535,750
1,700 Swiss Re Finance Bermuda Ltd. (Switzerland),
144A-Private Placement (a).................................. 2.000 07/06/00 3,115,250
----------
TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS............. 7,164,000
----------
UNITED STATES GOVERNMENT OBLIGATIONS 4.4%
20,000 United States Treasury Bond................................. 6.125 11/15/27 20,559,400
-----------
</TABLE>
See Notes to Financial Statements
B-34
<PAGE> 101
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Description Shares Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK 28.2%
CONSUMER DURABLES 0.6%
Newell Financial Trust, 5.25%, 144A-Private Placement (a)................... 55,000 $2,860,000
----------
CONSUMER NON-DURABLES 0.8%
Ralston Purina Co., 7.00% (Convertible into 83,609
Interstate Bakeries Corp. common shares).................................... 51,000 3,514,222
----------
CONSUMER SERVICES 6.4%
Apple South Financing, Inc., TECONS, $3.500 dividend per share.............. 25,000 1,290,625
Evergreen Media Corp., $3.000 dividend per share, 144A-Private
Placement (a)............................................................... 75,000 5,943,750
Golden Books Financing Trust, TOPRS, 8.75%, 144A-Private
Placement (a)............................................................... 65,700 3,465,675
Host Marriott Financial Trust, QUIPS, 6.75%, 144A-Private
Placement (a)............................................................... 85,000 5,142,500
News Corp., 5.00% (Convertible into 69,498 British Sky Broadcasting Group
common shares), 144A-Private Placement (a).................................. 45,000 4,005,000
Sinclair Broadcast Group Inc., 6.00%........................................ 48,900 2,799,525
Snyder Communications, Inc., STRYPES, 6.50%................................. 165,000 5,610,000
TCI Communications, $2.125 dividend per share............................... 25,000 1,603,125
----------
29,860,200
----------
ENERGY 3.8%
EVI, Inc., 5.00%, 144A - Private Placement (a).............................. 85,000 3,878,125
Sun Co., Ser A, $1.800 dividend per share................................... 80,000 2,870,000
Tosco Financing Trust, 5.75%................................................ 78,500 5,033,813
Unocal Capital Trust, 6.25%................................................. 100,000 5,625,000
----------
17,406,938
----------
FINANCE 8.3%
Ahmanson H.F. Co., $3.000 dividend per share Ser D, 6.00%................... 50,000 6,875,000
American Heritage Life Investment Corp., PRIDES, 8.50%...................... 25,000 1,425,000
Conseco, Inc., PRIDES, 7.00%................................................ 100,000 5,125,000
Finova Finance Trust, TOPRS, 5.50%.......................................... 40,000 2,800,000
Jefferson Pilot Corp., ACES, 7.25%.......................................... 38,000 4,066,000
PLC Capital Trust II, 6.50%................................................. 48,000 2,640,000
Sovereign Bancorp, Inc., $3.125 dividend per share.......................... 65,000 8,092,500
</TABLE>
See Notes to Financial Statements
B-35
<PAGE> 102
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Description Shares Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Sunamerica, Inc., PERCS, $3.188 dividend per share............... 110,200 $ 5,131,188
WBK Trust, STRYPES, 10.00%....................................... 63,000 2,110,500
-----------
38,265,188
-----------
HEALTHCARE 1.0%
MedPartners, Inc., 6.50%......................................... 206,000 4,532,000
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 0.4%
Timet Capital Trust, Inc., 6.625%, 144A-Private Placement (a).... 34,000 1,700,000
-----------
TECHNOLOGY 0.4%
Qualcomm Financial Trust, 5.75%, 144A-Private Placement (a)...... 45,000 2,126,250
-----------
TRANSPORTATION 1.4%
CNF Trust I, Ser A, TECONS, 5.00%................................ 25,000 1,425,000
Royal Caribbean Cruises Limited, Ser A, 7.25%.................... 60,000 5,103,750
-----------
6,528,750
-----------
UTILITIES 5.1%
Aes Trust II, TECONS, 5.50%, 144A - Private Placement (a)........ 50,000 2,600,000
Houston Industries, Inc., ACES, 7.00% (Convertible into 106,399
Time Warner, Inc. common shares)................................. 128,750 7,346,796
Nextel Trust, STRYPES, 7.25%..................................... 255,000 6,056,250
Nortel Inversora SA, MEDS (Argentina), 10.00% (Convertible into
93,047 Telecom Argentina SA common shares)....................... 53,500 3,393,906
Worldcom, Inc., DECS, 8.00%...................................... 41,600 4,368,000
-----------
23,764,952
-----------
TOTAL CONVERTIBLE PREFERRED STOCK 28.2%.......................... 130,558,500
-----------
</TABLE>
See Notes to Financial Statements
B-36
<PAGE> 103
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Description Shares Market Value
- --------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 8.0%
CONSUMER NON-DURABLES 0.9%
RJR Nabisco Holdings Corp.......................... 109,200 $ 4,095,000
------------
CONSUMER SERVICES 0.6%
CBS Corp........................................... 100,000 2,943,750
------------
ENERGY 2.5%
Amoco Corp......................................... 34,000 2,894,250
British Petroleum Co. PLC-ADR (United Kingdom)..... 20,000 1,593,750
Texaco, Inc........................................ 70,000 3,806,250
USX-Marathon Group................................. 90,000 3,037,500
------------
11,331,750
------------
FINANCE 2.0%
Citicorp........................................... 20,000 2,528,750
Travelers Group, Inc............................... 51,000 2,747,625
U.S. Bancorp....................................... 37,000 4,141,687
------------
9,418,062
------------
PRODUCER MANUFACTURING 0.7%
General Electric Co................................ 42,600 3,125,775
------------
TECHNOLOGY 0.6%
International Business Machines Corp............... 25,000 2,614,062
------------
UTILITIES 0.7%
SBC Communications, Inc............................ 45,000 3,296,250
------------
TOTAL COMMON STOCKS................................ 36,824,649
------------
TOTAL LONG-TERM INVESTMENTS 92.2% (COST $378,642,297) 426,226,436
------------
</TABLE>
See Notes to Financial Statements
B-37
<PAGE> 104
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Description Market Value
- -----------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 6.9%
REPURCHASE AGREEMENT 0.3%
BA Securities ($1,335,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 12/31/97, to be sold on
01/02/98 at $1,335,482)........................................... $ 1,335,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 6.6%
Federal Home Loan Mortgage
($5,907,000 par, yielding 5.553%, 02/06/98 maturity).............. 5,873,730
Federal National Mortgage Association
($5,000,000 par, yielding 5.553%, 01/05/98 maturity).............. 4,996,181
Federal National Mortgage Association
($20,000,000 par, yielding 5.553%, 02/06/98 maturity)............. 19,887,458
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.......................... 30,757,369
------------
TOTAL SHORT-TERM INVESTMENTS (COST $32,092,369)................... 32,092,369
------------
TOTAL INVESTMENTS 99.1% (COST $410,734,666)....................... 458,318,805
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%........................ 4,015,890
------------
NET ASSETS 100.0%................................................. $462,334,695
------------
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933.
These securities may be resold only in transactions exempt from
registration which are normally transactions with qualified institutional
buyers.
ACES-Automatically convertible equity securities
ADR -American Depository Receipt
DECS-Debt exchangeable for common stock
LYON-Liquid yield option note
MEDS-Mandatorily exchangeable debt security
PERCS-Preferred equity redemption cumulative stock
PRIDES-Preferred redeemable increased dividend equity security
QUIPS-Quality income preferred securities
STRYPES-Structured yield product exchangeable for stock
TECONS-Trust convertible securities
TOPRS-Trust originated preferred securities
See Notes to Financial Statements
B-38
<PAGE> 105
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $410,734,666)........................................ $458,318,805
Cash......................................................................... 5,272
Receivables:
Investments Sold........................................................ 9,805,468
Interest................................................................ 2,113,924
Dividends............................................................... 320,143
Fund Shares Sold........................................................ 85,406
Other........................................................................ 41,819
------------
Total Assets............................................................ 470,690,837
------------
LIABILITIES:
Payables:
Income Distributions.................................................... 3,942,274
Investments Purchased................................................... 2,235,030
Fund Shares Repurchased................................................. 1,338,404
Distributor and Affiliates.............................................. 305,840
Investment Advisory Fee................................................. 213,154
Accrued Expenses............................................................. 180,139
Trustees' Deferred Compensation and Retirement Plans......................... 141,301
------------
Total Liabilities....................................................... 8,356,142
------------
NET ASSETS................................................................... $462,334,695
============
NET ASSETS CONSIST OF:
Capital...................................................................... $408,435,858
Net Unrealized Appreciation.................................................. 47,584,139
Accumulated Net Realized Gain................................................ 4,507,515
Accumulated Undistributed Net Investment Income.............................. 1,807,183
------------
NET ASSETS................................................................... $462,334,695
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$376,442,973 and 24,997,425 shares of beneficial interest issued and
outstanding)............................................................ $ 15.06
Maximum sales charge (5.75%* of offering price)......................... .92
------------
Maximum offering price to public........................................ $ 15.98
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$81,289,568 and 5,426,072 shares of beneficial interest issued and
outstanding)............................................................ $ 14.98
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$4,602,154 and 305,181 shares of beneficial interest issued and
outstanding)............................................................ $ 15.08
============
*On sales of $50,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
B-39
<PAGE> 106
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................... $13,976,440
Dividends.................................................................. 7,614,260
-----------
Total Income.......................................................... 21,590,700
-----------
EXPENSES:
Investment Advisory Fee.................................................... 2,510,215
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of
$860,887, $817,776 and $40,397, respectively)............................ 1,719,060
Shareholder Services....................................................... 852,052
Legal...................................................................... 43,836
Trustees' Fees and Expenses................................................ 18,228
Custody.................................................................... 16,471
Other...................................................................... 367,628
-----------
Total Expenses........................................................ 5,527,490
-----------
NET INVESTMENT INCOME...................................................... $16,063,210
===========
REALIZED AND UNREALIZED GAIN:
Net Realized Gain.......................................................... $54,691,941
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................................... 46,088,714
End of the Period..................................................... 47,584,139
-----------
Net Unrealized Appreciation During the Period......................... 1,495,425
-----------
NET REALIZED AND UNREALIZED GAIN........................................... $56,187,366
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS................................. $72,250,576
===========
</TABLE>
See Notes to Financial Statements
B-40
<PAGE> 107
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................................. $ 16,063,210 $ 15,957,003
Net Realized Gain.................................................. 54,691,941 30,086,825
Net Unrealized Appreciation During the Period...................... 1,495,425 5,783,287
------------- -------------
Change in Net Assets from Operations.......................... 72,250,576 51,827,115
------------- -------------
Distributions from Net Investment Income*.......................... (17,653,801) (15,719,315)
Distributions in Excess of Net Investment Income*.................. (2,441,344) --
------------- -------------
Distributions from and in Excess of Net Investment Income*......... (20,095,145) (15,719,315)
Distributions from Net Realized Gains*............................. (48,007,153) (34,144,422)
------------- -------------
Total Distributions.......................................... (68,102,298) (49,863,737)
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES................ 4,148,278 1,963,378
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................................... 84,935,691 87,167,694
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................................... 56,172,535 40,889,008
Cost of Shares Repurchased......................................... (138,510,168) (150,653,873)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS................. 2,598,058 (22,597,171)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS.............................. 6,746,336 (20,633,793)
NET ASSETS:
Beginning of the Period............................................ 455,588,359 476,222,152
------------- -------------
End of the Period (Including accumulated undistributed
net investment income of ($1,807,183) and
$1,590,591, respectively)........................................ $ 462,334,695 $ 455,588,359
============= =============
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares................................................ $ (16,890,943) $ (13,429,245)
Class B Shares................................................ (3,045,626) (2,188,814)
Class C Shares................................................ (158,576) (101,256)
------------- -------------
$ (20,095,145) $ (15,719,315)
============= =============
Distributions from Net Realized Gain:
Class A Shares................................................ $ (39,111,920) $ (28,014,766)
Class B Shares................................................ (8,428,584) (5,855,197)
Class C Shares................................................ (466,649) (274,459)
------------- -------------
$ (48,007,153) $ (34,144,422)
============= =============
</TABLE>
See Notes to Financial Statements
B-41
<PAGE> 108
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $15.054 $ 15.05 $13.24 $ 15.12 $14.95
------- ------- ------ -------- ------
Net Investment Income.......................... .600 .566 .68 .63 .69
Net Realized and Unrealized Gain/Loss.......... 1.854 1.173 2.25 (1.5625) 1.365
------- ------- ------ -------- ------
Total from Investment Operations............... 2.454 1.739 2.93 (.9325) 2.055
------- ------- ------ -------- ------
Less:
Distributions from and in Excess of
Net Investment Income..................... .730 .555 .7025 .62 .66
Distributions from and in Excess of
Net Realized Gain......................... 1.719 1.180 .4175 .3275 1.225
------- ------- ------ -------- ------
Total Distributions............................ 2.449 1.735 1.12 .9475 1.885
------- ------- ------ -------- ------
Net Asset Value, End of the Period............. $15.059 $15.054 $15.05 $ 13.24 $15.12
======= ======= ====== ======== ======
Total Return (a)............................... 16.91% 12.08% 22.46% (6.43%) 13.56%
Net Assets at End of the Period (In millions).. $ 376.4 $ 373.1 $394.5 $ 369.7 $432.3
Ratio of Expenses to Average Net Assets........ 1.04% 1.09% 1.00% 1.04% 1.02%
Ratio of Net Investment Income to
Average Net Assets............................. 3.58% 3.60% 4.62% 4.39% 4.37%
Portfolio Turnover............................. 170% 129% 130% 105% 134%
Average Commission Paid Per
Equity Share Traded (b)........................ $ .0599 $ .0605 -- -- --
</TABLE>
(a) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
See Notes to Financial Statements
B-42
<PAGE> 109
FINANCIAL HIGHLIGHTS (CONTINUED
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------
Class B Shares 1997 1996 1995 1994 1993(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $14.992 $ 14.99 $13.20 $ 15.07 $14.90
------- ------- ------ -------- ------
Net Investment Income..................... .470 .437 .56 .51 .56
Net Realized and Unrealized Gain/Loss..... 1.848 1.180 2.23 (1.5505) 1.375
------- ------- ------ -------- ------
Total from Investment Operations............... 2.318 1.617 2.79 (1.0405) 1.935
------- ------- ------ -------- ------
Less:
Distributions from and in Excess of
Net Investment Income..................... .610 .435 .5825 .502 .54
Distributions from and in Excess of
Net Realized Gain......................... 1.719 1.180 .4175 .3275 1.225
------- ------- ------ -------- ------
Total Distributions............................ 2.329 1.615 1.00 .8295 1.765
------- ------- ------ -------- ------
Net Asset Value, End of the Period............. $14.981 $14.992 $14.99 $ 13.20 $15.07
======= ======= ====== ======== ======
Total Return (b)............................... 15.98% 11.19% 21.46% (7.11%) 12.68%
Net Assets at End of the Period (In millions).. $ 81.3 $ 78.9 $ 78.1 $ 71.1 $ 60.1
Ratio of Expenses to Average Net Assets........ 1.82% 1.88% 1.81% 1.84% 1.73%
Ratio of Net Investment Income to
Average Net Assets............................. 2.80% 2.81% 3.81% 3.63% 3.62%
Portfolio Turnover............................. 170% 129% 130% 105% 134%
Average Commission Paid Per
Equity Share Traded (c)........................ $ .0599 $ .0605 -- -- --
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
See Notes to Financial Statements
B-43
<PAGE> 110
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
October 26, 1993
(Commencement
Year Ended December 31, of Distribution) to
--------------------------------------
Class C Shares 1997 1996 1995 1994 December 31, 1993(a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period........................................ $15.079 $ 15.07 $13.25 $ 15.13 $ 16.14
------- ------- ------ -------- -------
Net Investment Income........................ .448 .439 .56 .52 .15
Net Realized and Unrealized
Gain/Loss.................................... 1.882 1.185 2.26 (1.5705) (.0325)
------- ------- ------ -------- -------
Total from Investment Operations.................. 2.330 1.624 2.82 (1.0505) .1175
------- ------- ------ -------- -------
Less:
Distributions from and in Excess
of Net Investment Income..................... .610 .435 .5825 .502 .125
Distributions from and in Excess
of Net Realized Gain......................... 1.719 1.180 .4175 .3275 1.0025
------- ------- ------ -------- -------
Total Distributions............................... 2.329 1.615 1.00 .8295 1.1275
------- ------- ------ -------- -------
Net Asset Value, End of the Period................ $15.080 $15.079 $15.07 $ 13.25 $ 15.13
======= ======= ====== ======== =======
Total Return (b).................................. 15.96% 11.20% 21.52% (7.14%) .93%*
Net Assets at End of the Period
(In millions)..................................... $ 4.6 $ 3.6 $ 3.6 $ 3.3 $ 1.1
Ratio of Expenses to
Average Net Assets................................ 1.82% 1.88% 1.80% 1.84% 1.90%
Ratio of Net Investment Income to
Average Net Assets................................ 2.79% 2.81% 3.80% 3.72% 3.88%
Portfolio Turnover................................ 170% 129% 130% 105% 134%
Average Commission Paid Per
Equity Share Traded (c)........................... $ .0599 $ .0605 -- -- --
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
* Non-Annualized
See Notes to Financial Statements
B-44
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Harbor Fund (the "Fund") is organized as a Delaware
business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek income, capital appreciation, and
conservation of capital by investing primarily in convertible bonds and
preferred stocks. The Fund commenced investment operations on November 15, 1956.
The distribution of the Fund's Class B and Class C shares commenced on December
20, 1991 and October 26, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION-Investments in securities listed on a securities exchange
are valued at their 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 last bid price. Unlisted convertible securities are
valued at the higher of their last bid price or the value of the securities
issuable on conversion. Fixed income investments are stated at values using
market quotations. For those securities where quotations or prices are not
available, valuations are determined in accordance with procedures established
in good faith by the Board of Trustees. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
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. Debt securities rated below investment grade and comparable
unrated securities represented approximately 26% of the investment portfolio at
the end of the period.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At December 31, 1997, there were no
when issued or delayed delivery purchase commitments.
B-45
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
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 American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such security 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-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts are
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
For Federal income tax purposes, the following information is furnished
with respect to the distributions paid by the Fund during its taxable year ended
December 31, 1997. The Fund designated $23,597,262 as a 28% rate capital gain
distribution and $10,286,383 as a 20% rate capital gain distribution.
Shareholders were sent a 1997 Form 1099-DIV in January 1998 representing their
proportionate share of the capital gain distribution to be reported on their
income tax returns. For corporate shareholders 20.36% of the distributions
qualify for the dividend received deductions.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.
At December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $411,097,980; the aggregate gross unrealized
appreciation is $54,513,093 and the aggregate gross unrealized depreciation is
$7,292,268, resulting in net unrealized appreciation of $47,220,825.
E. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net
B-46
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
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 book and tax basis reporting
for the 1997 fiscal year have been identified and appropriately reclassified.
Permanent difference related to the recognition of market discount on bonds
totaling $4,253,633 have been reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income. Additionally,
miscellaneous permanent difference of ($5,106) was reclassified from accumulated
net investment income to accumulated net realized gain.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- --------------------------------------------------------------------------------
<S> <C>
First $350 million.................................................... .55 of 1%
Next $350 million..................................................... .50 of 1%
Next $350 million..................................................... .45 of 1%
Over $1.05 billion.................................................... .40 of 1%
</TABLE>
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $43,800 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 December 31, 1997, the Fund recognized expenses of
approximately $90,000 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
December 31, 1997, the Fund recognized expenses of approximately $543,800,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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
B-47
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
period and are based upon each trustee's years of service to the Fund. The
maximum annual benefit per trustee under the plan is equal to $2,500.
At December 31, 1997, VKAC owned 10,929 Class A shares of the Fund.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At December 31, 1997, capital aggregated $322,661,130, $81,120,868 and
$4,653,860 for Classes A, B, and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------------------
Sales:
<S> <C> <C>
Class A............................... 4,596,353 $ 72,255,103
Class B............................... 702,695 11,137,353
Class C............................... 95,609 1,543,235
--------- -------------
Total Sales................................ 5,394,657 $ 84,935,691
========= =============
Dividend Reinvestment:
Class A............................... 3,078,670 $ 45,914,946
Class B............................... 660,267 9,780,959
Class C............................... 32,032 476,630
--------- -------------
Total Dividend Reinvestment................ 3,770,969 $ 56,172,535
========= =============
Repurchases:
Class A............................... (7,461,163) $(118,439,608)
Class B............................... (1,201,555) (19,139,823)
Class C............................... (58,685) (930,737)
--------- -------------
Total Repurchases (8,721,403) $(138,510,168)
========= =============
</TABLE>
B-48
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
At December 31, 1996, capital aggregated $322,930,689, $79,342,379 and
$3,564,732 for Classes A, B, and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------------------
Sales:
<S> <C> <C>
Class A 4,875,165 $ 75,494,408
Class B 703,001 10,764,426
Class C 58,788 908,860
--------- -------------
Total Sales 5,636,954 $ 87,167,694
========= =============
Dividend Reinvestment:
Class A 2,263,498 $ 33,723,663
Class B 463,576 6,871,379
Class C 19,718 293,966
--------- -------------
Total Dividend Reinvestment 2,746,792 $ 40,889,008
========= =============
Repurchases:
Class A (8,572,686) $(132,355,144)
Class B (1,109,391) (16,975,680)
Class C (85,772) (1,323,049)
--------- -------------
Total Repurchases (9,767,849) $(150,653,873)
========= =============
</TABLE>
B-49
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
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 for Class B and one
year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------
<S> <C> <C>
First.................................... 5.00% 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 December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$48,500 and CDSC on the redeemed shares of Classes B and C of approximately
$125,400. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $730,572,633 and $799,658,611,
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 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 net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1997, are payments retained by VKAC of
approximately $678,000.
B-50
<PAGE> 117
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<S> <C>
(1)(a) First Amended and Restated Agreement and Declaration of
Trust(6)
(b) Certificate of Amendment(6)
(c) Amended and Restated Certificate of Designation+
(2) Amended and Restated Bylaws(6)
(4)(a) Specimen Class A Share Certificate(7)
(b) Specimen Class B Share Certificate(7)
(c) Specimen Class C Share Certificate(7)
(5) Investment Advisory Agreement+
(6)(a) Distribution and Service Agreement+
(b) Form of Dealer Agreement(7)
(c) Form of Broker Agreement(7)
(d) Form of Bank Agreement(7)
(8)(a) Custodian Agreement(8)
(b) Transfer Agency and Service Agreement+
(9)(a) Data Access Services Agreement(7)
(b) Fund Accounting Agreement+
(10) Opinion of Skadden, Arps, Slate, Meager & Flom (Illinois)(7)
(11) Consent of Price Waterhouse LLP+
(14)(a) Individual Retirement Account Brochure with Application(4)
(b) 403(b)(7) Custodial Account(2)
(c) ORP 403(b)(7) Custodial Account(2)
(d) Retirement Plans for the Small Business -- Forms Package and
Plan Documents(5)
(e) Prototype Profit Sharing/Money Purchase Plan and Trust(1)
(f) Prototype 401(k) Plan and Trust(1)
(g) Salary Reduction Simplified Employee Pension Plan(3)
(15)(a) Plan of Distribution Pursuant to 12b-1(7)
(b) Form of Shareholder Assistance Agreement(7)
(c) Form of Administrative Service Agreement(7)
(d) Service Plan(7)
(16) Computation Measure for Performance Information+
</TABLE>
C-1
<PAGE> 118
<TABLE>
<S> <C>
(17)(a) List of Certain Investment Companies in Response to Item
29(a)(8)
(b) List of Officers and Directors of Van Kampen American
Capital Distributors, Inc. in Response to Item 29(b)(8)
(18) Amended Multiple Class Plan(7)
(24) Power of Attorney+
(27) Financial Data Schedules+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 61 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Growth and Income Fund, File Number 2-21657, filed March 26, 1991.
(2) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Reserve Fund, File Number 2-50870, filed September 24, 1992.
(3) Incorporated herein by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital World Portfolio Series Trust, File Number 33-37879, filed September
24, 1993.
(4) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Reserve Fund, File Number 2-50870, filed September 24, 1993.
(5) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Government Securities Fund, File Number 2-90482, filed February 25,
1994.
(6) Incorporated herein by reference to Post-Effective Amendment No. 77 to
Registrant's Registration Statement on Form N-1A, File Number 2-12685, filed
April 24, 1996.
(7) Incorporated herein by reference to Post-Effective Amendment No. 78 to
Registrant's Registration Statement on Form N-1A, File Number 2-12685, filed
April 28, 1997.
(8) Incorporated herein by reference to Post-Effective Amendment No. 75 to Van
Kampen American Capital Growth & Income Fund's Registration Statement on
Form N-1A, File Number 2-21657 filed March 27, 1998.
+ Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See "General Information" in the Statement of Additional Information.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF APRIL 3, 1998
<TABLE>
<CAPTION>
(2)
NUMBER OF RECORD HOLDERS
(1) ------------------------------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
-------------- ------- ------- -------
<S> <C> <C> <C>
Common shares of 20,232 5,014 407
beneficial
interest, par
value $0.01 per
share
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the
C-2
<PAGE> 119
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 interest 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 "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (File No. 801-1669)
filed under the Investment Advisers Act of 1940, as amended, incorporated herein
by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17(a) incorporated by
reference herein.
(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
C-3
<PAGE> 120
officers thereof are set forth in Exhibit 17(b). Except as disclosed under the
heading, "Trustees and Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.
(c) Not applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-4
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL
HARBOR FUND, certifies that it meets all of the requirements for effectiveness
of this Amendment to the Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Oakbrook Terrace and the State of Illinois, on
the 24th day of April, 1998.
VAN KAMPEN AMERICAN CAPITAL
HARBOR FUND
By: /s/ RONALD A. NYBERG
---------------------------------------
Ronald A. Nyberg, Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed on April 24, 1998, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S> <C>
Principal Executive Officer:
/s/ DENNIS J. MCDONNELL* President and Trustee
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ EDWARD C. WOOD III* Vice President and Chief Financial
- ----------------------------------------------------- Officer
Edward C. Wood III
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Chairman and Trustee
- -----------------------------------------------------
Wayne W. Whalen
- ------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.
/s/ RONALD A. NYBERG
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
April 24, 1998
<PAGE> 122
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
INDEX TO EXHIBITS TO AMENDMENT NO. 79 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 28, 1998
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
(1) (c) Amended and Restated Certificate of Designation
(5) Investment Advisory Agreement
(6) (a) Distribution and Service Agreement
(8) (b) Transfer Agency and Service Agreement
(9) (b) Fund Accounting Agreement
(11) Consent of Price Waterhouse LLP
(16) Computation Measure for Performance Information
(24) Power of Attorney
(27) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 1(c)
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
Amended and Restated Certificate of Designation
of
Van Kampen American Capital Harbor Fund
The undersigned, being the Secretary of Van Kampen American Capital Harbor
Fund, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's First
Amended and Restated Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby amend and
restate in its entirety the Certificate of Designation of the Van Kampen
American Capital Harbor Fund Series of the Trust dated June 21, 1995 by
redesignating the following classes of Shares of the Trust with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Trust shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Trust. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
4. Conversion. Each Class B Share and certain Class C Shares of the Trust
shall be converted automatically, and without any action or choice on the part
of the Shareholder thereof, into Class A Shares of the Trust at such times and
pursuant to such terms, conditions and restrictions as may be established by
the Trustees and as set forth in the Trust's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of the
Trust may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Trust unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled
to vote or, if such amendment affects the Shares of one or more but not all of
the Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
December 12, 1996
/s/ Ronald A. Nyberg
---------------------------
Ronald A. Nyberg, Secretary
<PAGE> 1
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL HARBOR FUND, a Delaware business trust (hereinafter referred
to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC., a
Delaware corporation (hereinafter referred to as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including,
by way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale
of portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by
way of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
FUND selected by the Trustees, and the supervision of the FUND's Treasurer and
the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and Fund officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER
shall use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized
by law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND
shall pay, or arrange for others to pay, all its expenses other than those
expressly stated to be payable by the ADVISER hereunder, which expenses payable
by the FUND shall include (i) interest and taxes; (ii) brokerage commissions
and other costs in connection with the purchase and sale of portfolio
investments; (iii) compensation of its trustees and officers other than those
who are affiliated persons of the ADVISER; (iv) compensation of its Treasurer,
compensation of personnel working under the Treasurer's direction, and expenses
of office space, facilities, and equipment used by the Treasurer and such
personnel in the performance of their normal duties for the FUND which consist
of maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such
<PAGE> 2
financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Trustees; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
For a period of one year commencing on the effective date of this
Agreement, the ADVISER and the FUND agree that the retention of (i) the chief
executive officer, president, chief financial officer and secretary of the
ADVISER and (ii) each director, officer and employee of the ADVISER or any of
its Affiliates (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) who serves as an officer of the FUND (each person referred to
in (i) or (ii) hereinafter being referred to as an "Essential Person"), in his
or her current capacities, is in the best interest of the FUND and the FUND's
shareholders. In connection with the ADVISER's acceptance of employment
hereunder, the ADVISER hereby agrees and covenants for itself and on behalf of
its Affiliates that neither the ADVISER nor any of its Affiliates shall make
any material or significant personnel changes or replace or seek to replace any
Essential Person or cause to be replaced any Essential Person, in each case
without first informing the Board of Trustees of the FUND in a timely manner.
In addition, neither the ADVISER nor any Affiliate of the ADVISER shall change
or seek to change or cause to be changed, in any material respect, the duties
and responsibilities of any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the
"1940 Act"), any of the shareholders, trustees, officers and employees of the
FUND may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties hereunder on
the part of the ADVISER, neither the ADVISER nor any subadviser shall be
subject to liability to the FUND, or to any shareholder of the FUND, for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
<PAGE> 3
(3) COMPENSATION PAYABLE TO THE ADVISER
The FUND shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
computed at the following annual rate:
.55% on the first $350 million of the FUND's average daily net assets; .50% on
the next $350 million of the FUND's average daily net assets; .45% on the next
$350 million of the FUND's average daily net assets; and .40% of any excess
over $1.05 billion.
Average daily net assets shall be determined by taking the average of the
net assets for each business day during a given calendar month calculated in
the manner provided in the FUND's Declaration of Trust. Such fee shall be
payable for each calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3
shall be reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the ADVISER, or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such
commissions, fees, brokerage or similar payments. The ADVISER shall use its
best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Trustees of any other commissions, fees, brokerage or similar
payments which may be possible for the ADVISER or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc. to receive in connection with
FUND's portfolio transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any
fiscal year should exceed the most restrictive expense limitation applicable in
the states where the FUND's shares are qualified for sale, the compensation due
the ADVISER for such fiscal year shall be reduced by the amount of such excess.
The Adviser's compensation shall be so reduced by a reduction or a refund
thereof, at the time such compensation is payable after the end of each
calendar month during such fiscal year of the FUND, and if such amount should
exceed such monthly compensation, the ADVISER shall pay the FUND an amount
sufficient to make up the deficiency, subject to readjustment during the FUND's
fiscal year. For purposes of this paragraph, all ordinary business expenses of
the FUND shall include the investment advisory fee and other operating expenses
paid by the FUND except (i) for interest and taxes; (ii) brokerage commissions;
(iii) as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to Van Kampen American Capital Distributors, Inc., the distributor
of the FUND's shares, in connection with a distribution plan adopted by the
FUND's Trustees pursuant to Rule 12b-1 under the Investment Company Act of
1940.
If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the Act.
<PAGE> 4
(5) DURATION OF AGREEMENT
This Agreement shall become effective on the date hereof, and shall remain
in full force until May 31, 1999 unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter,
but only so long as such continuance is approved at least annually by the vote
of a majority of the FUND's Trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval , and by a vote of a majority of the
FUND's Trustees or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its
assignment. The Agreement may be terminated at any time by the FUND's
Trustees, by vote of a majority of the FUND's outstanding voting securities, or
by the ADVISER, on 60 days' written notice, or upon such shorter notice as may
be mutually agreed upon. Such termination shall be without payment of any
penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the FUND
or the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually but are binding only upon the
assets and property of the FUND. A Certificate of Trust in respect of the FUND
is on file with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this
Agreement shall be determined in accordance with the laws (without giving
effect to the conflict-of-law principles thereof) of the State of Delaware
applicable to contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. HARBOR FUND
By:/s/ Dennis J. McDonnell By:/s/ Peter W. Hegel
----------------------------- -----------------------------
Name: Dennis J. McDonnell Name: Peter W. Hegel
Its: President Its: Executive Vice President
<PAGE> 1
EXHIBIT 6(a)
DISTRIBUTION AND SERVICE AGREEMENT
THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997 (the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL HARBOR FUND (the
"Fund") and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., a Delaware
corporation (the "Distributor").
1. (a) Appointment of Distributor. The Fund appoints the Distributor as
a principal underwriter and exclusive distributor of each class of its shares
of beneficial interest (the "Shares") offered for sale from time to time
pursuant to the then current prospectus of the Fund, subject to different
combinations of front-end sales charges, distribution fees, service fees and
contingent deferred sales charges. Classes of shares, if any, subject to a
front-end sales charge and a distribution and/or service fee are referred to
herein as "FESC Classes" and the Shares of such classes are referred to herein
as "FESC Shares." Classes of shares, if any, subject to a contingent-deferred
sales charge and a distribution and/or a service fee are referred to herein as
"CDSC Classes" and Shares of such classes are referred to herein as "CDSC
Shares." Classes of shares, if any, subject to a front-end sales charge, a
contingent-deferred sales charge and a distribution and/or service fee are
referred to herein as "Combination Classes" and Shares of such class are
referred to herein as "Combination Shares." The Fund reserves the right to
refuse at any time or times to sell Shares hereunder for any reason deemed
adequate by the Board of Trustees of the Fund.
(b) Best Efforts. The Distributor shall use its best efforts to sell,
through its organization and through other dealers and agents, the Shares which
the Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares. Without
the prior approval of the Board of Trustees, the Distributor shall not,
directly or indirectly, distribute, sell or market, through its organization or
other brokers, dealers or agents, shares of any investment companies unless the
Board of Trustees of the Fund determines that such companies do not compete, or
potentially compete, with the Fund.
(c) Positions in the Shares. The Distributor agrees that it will not
take any long or short positions in the Shares, except for long positions in
those Shares purchased by the Distributor in accordance with any systematic
sales plan described in the then current Prospectus of the Fund and except as
permitted by Section 2 hereof, and that so far as it can control the situation,
it will prevent any of its trustees, officers or shareholders from taking any
long or short positions in the Shares, except for legitimate investment
purposes.
(d) Essential Personnel. The Distributor and the Fund agree that the
retention of (i) the chief executive officer, president, treasurer and
secretary of the Distributor, and (ii) each director, officer and employee of
the Distributor or any of its affiliates (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) who serves as an officer of the Fund
(each person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person "), in his or her current capacities, is in the best interest
of the Fund and the Fund's shareholders. In connection with the Distributor's
acceptance of employment hereunder, the Distributor hereby agrees and covenants
for itself and on behalf of its Affiliates that neither the Distributor nor any
of its Affiliates shall replace or seek to replace any Essential Person or
cause to be replaced any Essential Person, in each case without first
consulting with the Board of Trustees of the Fund in a timely manner. In
addition, neither the Distributor nor any Affiliate of the Distributor shall
change or seek to change or cause to be changed, in any material respect, the
duties and responsibilities of any Essential Person, in each case without first
consulting with the Board of Trustees of the Fund in a timely manner.
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth. Such
exclusive right hereby granted shall not apply to Shares issued or transferred
or sold at net asset value: (a) in connection with the merger or consolidation
of the Fund with any other investment
1
<PAGE> 2
company or the acquisition by the Fund of all or substantially all of the
assets of or the outstanding Shares of any investment company; (b) in
connection with a pro rata distribution directly to the holders of Shares in
the nature of a stock dividend or stock split or in connection with any other
recapitalization approved by the Board of Trustees; (c) upon the exercise of
purchase or subscription rights granted to the holders of Shares on a pro rata
basis; (d) in connection with the automatic reinvestment of dividends and
distributions from the Fund; or (e) in connection with the issue and sale of
Shares to trustees, officers and employees of the Fund, to directors, officers
and employees of the investment adviser of the Fund or any principal
underwriter (including the Distributor) of the Fund, to retirees of the
Distributor that purchased shares of any mutual fund distributed by the
Distributor prior to retirement, to directors, officers and employees of Van
Kampen American Capital, Inc. (the parent company of the Distributor), VK/AC
Holding, Inc. (the parent company of The Van Kampen American Capital, Inc.),
Morgan Stanley, Dean Witter, Discover & Co. (the parent company of VK/AC
Holding, Inc.) and to the subsidiaries of Van Kampen American Capital, Inc.;
(f) to any trust, pension, profit-sharing or other benefit plan for any of the
aforesaid persons; and (g) to any group of persons as permitted by Rule 22d-1
under the 1940 Act approved from time to time by the Board of Trustees and set
forth in the then current Prospectus of the Fund.
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission and cancellation of
orders) to fill unconditional orders for Shares received by the Distributor
from dealers, agents and investors during each period when particular net asset
values and public offering prices are in effect as provided in Section 3
hereof; and the price which the Distributor shall pay for the Shares so
purchased shall be the respective net asset value used in determining the
public offering price on which such orders were based. The Distributor shall
notify the Fund at the end of each such period, or as soon thereafter on that
business day as the orders received in such period have been compiled, of the
number of Shares of each class that the Distributor elects to purchase
hereunder.
3. (a) Public Offering Price. The public offering price per Share shall
be determined in accordance with the then current Prospectus of the Fund. In
no event shall the public offering price exceed the net asset value per Share,
plus, with respect to the FESC Shares, a front-end sales charge
not in excess of the applicable maximum sales charge permitted under the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., as in
effect from time to time. The net asset value per share for each class of
Shares, respectively, shall be determined in the manner provided in the
Declaration of Trust and By-Laws of the Trust as then amended, the Certificate
of Designation with respect to the Fund, as amended, and in accordance with the
then current Prospectus of the Fund consistent with the terms and conditions of
the Fund's Multiple Class Plan adopted by the Board of Trustees in accordance
with Section 18 of the 1940 Act and Rule 18f-3 thereunder. The Fund will cause
immediate notice to be given to the Distributor of each change in net asset
value as soon as it is determined.
(b) Discounts to Dealers. Discounts to dealers purchasing FESC Shares
from the Distributor for resale and to brokers and other eligible agents making
sales of FESC Shares to investors and compensation payable from the Distributor
to dealers, brokers and other eligible agents making sales of CDSC Shares and
Combination Shares shall be set forth in the selling agreements between the
Distributor and such dealers or agents, respectively, as from time to time
amended, and, if such discounts and compensation are described in the then
current Prospectus for the Fund, shall be as so set forth. In connection with
the Distributor's employment hereunder, the Distributor hereby agrees to
distribute the Shares through brokers, dealers and other agents of Dean Witter
Distributors, Inc. on a "proprietary basis" substantially identical to the
distribution of shares of proprietary open-end investment companies distributed
by Dean Witter Distributors, Inc.
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund Shares,
the Distributor will in all respects duly comply with all state and federal
laws relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation, the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., and
all applicable rules and regulations of the Securities and Exchange Commission
under the 1940 Act, and will indemnify and save the Fund
2
<PAGE> 3
harmless from any damage or expense on account of any unlawful act by the
Distributor or its agents or employees. The Distributor is not, however, to be
responsible for the acts of other dealers or agents, except to the extent that
they shall be acting for the Distributor or under its direction or authority.
None of the Distributor, any dealer, any agent or any other person is
authorized by the Fund to give any information or to make any representations,
other than those contained in the Registration Statement or Prospectus
heretofore or hereafter filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "1933 Act") (as any such
Registration Statement and Prospectus may have been or may be amended from time
to time), covering the Shares, and in any supplemental information to any such
Prospectus approved by the Fund in connection with the offer or sale of Shares.
None of the Distributor, any dealer, any broker or any other person is
authorized to act as agent for the Fund in connection with the offering or sale
of Shares to the public or otherwise. All such sales shall be made by the
Distributor as principal for its own account.
In selling Shares to investors, the Distributor will adopt and comply with
certain standards, as set forth in Exhibit III attached hereto as to when each
respective class of Shares may appropriately be sold to particular investors.
The Distributor will require every broker, dealer and other eligible agent
participating in the offering of the Shares to agree to adopt
and comply with such standards as a condition precedent to their participation
in the offering.
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund will
exercise its best efforts to obtain said registration and
qualification;
(ii) all expenses in connection with the printing of any
notices of shareholders' meetings, proxy and proxy statements
and enclosures therewith, as well as any other notice or
communication sent to shareholders in connection with any
meeting of the shareholders or otherwise, any annual,
semiannual or other reports or communications sent to the
shareholders, and the expenses of sending prospectuses
relating to the Shares to existing shareholders;
(iii) all expenses of any federal or state
original-issue tax or transfer tax payable upon the issuance,
transfer or delivery of Shares from the Fund to the
Distributor; and
(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.
(b) The Distributor will pay the costs and expenses of qualifying
and maintaining qualification of the Shares for sale under the securities laws
of the various states. The Distributor will also permit its officers and
employees to serve without compensation as trustees and officers of the Fund if
duly elected to such positions.
(c) The Fund shall reimburse the Distributor for out-of-pocket
costs and expenses actually incurred by it in connection with distribution of
each class of Shares respectively in accordance with and subject to the terms
of a plan (the "12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under
the 1940 Act as such 12b-1 Plan may be in effect from time to time; provided,
however, that no payments shall be due or paid to the Distributor hereunder
with respect to a class of Shares unless and until this Agreement shall have
been approved for each such class by a majority of the Board of Trustees of the
Fund and by a majority of the "Disinterested Trustees" (as such term is defined
in such 12b-1 Plan) by vote cast in person at a meeting called for the purpose
of voting on this Agreement. A copy of such 12b-1 Plan as in effect on the
date of this Agreement is attached as Exhibit I hereto. The Fund reserves the
right to terminate such 12b-1 Plan with respect to a class of Shares at any
time, as specified in the Plan. The persons authorized to direct the payment
of funds pursuant to this Agreement and the 12b-1
3
<PAGE> 4
Plan shall provide to the Fund's Board of Trustees, and the Trustees shall
review, at least quarterly, a written report with respect to each class of
Shares setting forth the amounts so paid, the purposes for which such
expenditures were made for each such class of Shares, comparing the amounts
paid by such class of Shares with amounts paid by classes of shares issued by
investment companies not governed by the Board of Trustees and distributed by
the Distributor or by direct or indirect Affiliates of the Distributor and such
other information as the Board of Trustees may from time to time request.
(d) The Fund shall compensate the Distributor for providing services
to, and the maintenance of, shareholder accounts in the Fund (including
prepaying service fees to eligible brokers, dealers and financial
intermediaries and expenses incurred in connection therewith) and the
Distributor may pay as agent for and on behalf of the Fund a service fee with
respect to each class of Shares to brokers, dealers and financial
intermediaries for the provision of shareholder services and the maintenance of
shareholder accounts in the Fund in the amount with respect to each class of
Shares set forth from time to time in the Fund's prospectus. The Fund shall
compensate the Distributor for such expenses in accordance with the terms of a
service plan (the "Service Plan"), as such Service Plan may be in effect from
time to time; provided, however, that no service fee payments shall be due or
paid to the Distributor hereunder with respect to a class of Shares unless and
until this Agreement shall have been approved for each such class by a majority
of the Board of Trustees of the Fund and by a majority of the Disinterested
Trustees by vote cast in person at a meeting called for the purpose of voting
on this Agreement. A copy of such Service Plan as in effect on the date of
this Agreement is attached as Exhibit II hereto. The Fund reserves the right
to terminate such Service Plan with respect to a class of Shares at any time,
as specified in the Plan. The persons authorized to direct the payment of
funds pursuant to this Agreement and the Service Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall review, at least quarterly, a
written report with respect to each class of Shares setting forth the amounts
paid as service fees for each such class of Shares comparing the amounts paid
as service fees by such class of Shares with amounts paid by classes of shares
issued by investment companies not governed by the Board of Trustees and
distributed by the Distributor or by direct or indirect Affiliates of the
Distributor and such other information as the Board of Trustees may from time
to time request.
6. Redemption of Shares. In connection with the Fund's redemption of its
Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal and state
legislation, any applicable rules of the National Association of Securities
Dealers, Inc., and any applicable rules and regulations of the Securities and
Exchange Commission under the 1940 Act, the Distributor may accept offers of
holders of Shares to resell such Shares to the Fund on such terms and
conditions and at such prices as described and provided for in the then current
Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as the
Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such repurchases,
and the Fund shall notify the Distributor of the prices and, in the case of a
class of CDSC Shares or Combination Shares, of the deferred sales charge as
described below, if any, applicable to repurchases of Shares of such class.
(c) The Fund shall have the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by
telegraph or by written instrument from any of the Fund's officers. In the
event that the Distributor's authorization is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote of
the Board of Trustees of the Fund.
(d) The Distributor agrees that all repurchases of Shares made by the
Distributor shall be made only as agent for the Fund's account and pursuant to
the terms and conditions herein set forth.
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<PAGE> 5
(e) The Fund agrees to authorize and direct its Custodian to pay, for
the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so repurchased for the Fund
against the authorized transfer of book shares from an open account and against
delivery of any other documentation required by the Board of Trustees of the
Fund or, in the case of certificated Shares, against delivery of the
certificates representing such Shares in proper form for transfer to the Fund.
(f) The Distributor shall receive no commissions or other compensation
in respect of any repurchases of FESC Shares for the Fund under the foregoing
authorization and appointment as agent. With respect to any repurchase of CDSC
Shares or Combination Shares, the Distributor shall receive the deferred sales
charge, if any, applicable to the respective class of Shares that have been
held for less than a specified period of time with respect to such class as set
forth from time to time in the Fund's Prospectus. The Distributor shall
receive no other commission or other compensation in respect of any repurchases
of CDSC Shares or Combination Shares for the Fund under the foregoing
authorization and appointment as agent.
(g) If any FESC Shares sold to the Distributor under the terms of this
Agreement are redeemed or repurchased by the Fund or by the Distributor as
agent or are tendered for redemption within seven business days after the date
of the Distributor's confirmation of the original purchase by the Distributor,
the Distributor shall forfeit the amount above the net asset value received by
it in respect of such Shares, provided that the portion, if any, of such amount
re-allowed by the Distributor to dealers or agents shall be repayable to the
Fund only to the extent recovered by the Distributor from the dealer or agent
concerned. The Distributor shall include in agreements with such dealers and
agents a corresponding provision for the forfeiture by them of their concession
with respect to FESC Shares purchased by them or their principals and redeemed
or repurchased by the Fund or by the Distributor as agent within seven business
days after the date of the Distributor's confirmation of such initial
purchases.
7. Indemnification. The Fund agrees to indemnify and hold harmless 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, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
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 Fund (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
therein, in light of the circumstances under which they were made,
not misleading under the 1933 Act or any other statute or the common law.
However, the Fund 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 Fund by or on behalf
of the Distributor. In no case (i) is the indemnity of the Fund 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
securityholders 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 this Agreement, or (ii) is the Fund to be liable
under its indemnity agreement contained in this Section with respect to any
claim made against the Distributor or any person indemnified unless the
Distributor or any such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or any such person (or after the Distributor or the
person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund
from any liability which it may have to the Distributor or any person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense, of any suit brought to enforce any claims, but if the Fund elects
to assume the defense, the defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume the defense of
any suit and retain counsel, the Distributor, officers or trustees or
5
<PAGE> 6
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them. If the Fund
does not elect to assume the defense of any suit, it will reimburse the
Distributor, officers or trustees or controlling person or persons, defendant
or defendants in the suit for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of any of the Shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Fund and each of its trustees and officers and each person, if
any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim
or expense and reasonable counsel fees incurred in connection therewith)
arising by reason of any person acquiring any Shares, based upon the 1933 Act
or any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (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 therein, in light of the
circumstances under which they were made, not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund by or on behalf of the Distributor. In no
case (i) is the indemnity of the Distributor in favor of the Fund or any person
indemnified to be deemed to protect the Fund or any such person against
any liability to which the Fund 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 obligation and
duties under this Amended Agreement, or (ii) is the Distributor to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Fund or any person indemnified unless the Fund or
person, as the case may be, shall have notified the Distributor in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Fund or person (or after the Fund or such person shall have
received notice of service on any designated agent). However, failure to
notify the Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Fund or any person against whom the action
is brought otherwise than on account of its indemnity agreement contained in
this paragraph. In the case of any notice to the Distributor, it shall be
entitled to participate, at its own expense, in the defense, or, if it so
elects, to assume the defense, of any suit brought to enforce the claim, but if
the Distributor elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Fund, to its officers and trustees
and to any controlling person or persons, defendant or defendants in the suit.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the Fund or controlling persons, defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the Fund, officers and trustees or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Fund promptly of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any of the Shares.
8. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the
Fund, on written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement
may be terminated by the Distributor on ninety (90) days' written notice to the
Fund. Upon termination of this Agreement with respect to either class of
Shares of the Fund, the obligations of the
6
<PAGE> 7
parties hereunder shall cease and terminate with respect to such class of
Shares as of the date of such termination, except for any obligation to respond
for a breach of this Agreement committed prior to such termination.
This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.
9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. Notice. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office
of such party or at such other address as such party shall have designated in
writing.
11. Name. In connection with its employment hereunder, the Distributor
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
By:/s/ Dennis J. McDonnell
-----------------------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS,
INC.
By:/s/ Ronald A. Nyberg
-----------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
8
<PAGE> 1
EXHIBIT (8)(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of May, 1997 by and between each of the
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto,
which are organized under the laws of the state and as the entities set forth
in Schedule "A" hereto (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation ("ACCESS").
R E C I T A L:
-------------
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment; Duties of ACCESS.
---------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement, each
of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence
in accordance with reasonable industry practice, and that the necessary
facilities, equipment and personnel for such performance will be provided.
1.04 For a period of one year commencing on the effective date of this
Agreement, ACCESS and each of the Funds agree that the retention of (i) the
chief executive officer, president, chief financial officer, chief operating
officer and secretary of ACCESS and (ii) each director, officer and employee of
ACCESS or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Funds (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest
<PAGE> 2
of the Funds and the Funds' shareholders. In connection with ACCESS's
acceptance of employment hereunder, ACCESS hereby agrees and covenants for
itself and on behalf of its Affiliates that neither ACCESS nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Funds
in a timely manner. In addition, neither ACCESS nor any Affiliate of ACCESS
shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Funds in a timely
manner.
1.05 In order to assure compliance with section 1.03 and to implement a
cooperative effort to improve and maintain the quality of transfer agency,
dividend disbursing and shareholder services received by each of the Funds and
their shareholders, ACCESS agrees to provide and maintain quantitative
performance objectives, including maximum target turn-around times and maximum
target error rates, for the various services provided hereunder. ACCESS also
agrees to provide a reporting system designed to provide the Board of Trustees
of each of the Funds (the "Board") on a quarterly basis with quantitative data
comparing actual performance for the period with the performance objectives.
The foregoing procedures are designed to provide a basis for continuing
monitoring by the Board of the quality of services rendered hereunder.
Article 2. Fees and Expenses.
------------------
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each of the
Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings
Page 2
<PAGE> 3
to all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
Article 3. Representations and Warranties of Access.
-----------------------------------------
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in each jurisdiction in
which the nature of its business requires it to be so qualified.
3.03 It is empowered under applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform its
duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as follows:
(a) Each "as of" transaction effected at a price other than that in
effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error,
or delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon any Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of such Fund, ACCESS shall promptly make a payment to such Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of such Fund. If on the last business day
of the month the cumulative net effect (adjusted by the amount of any
payments or credits used pursuant to the preceding sentence) upon any
Fund is negative, such Fund shall be entitled to a reduction in the
monthly transfer agency fee next payable by an equivalent amount, except
as provided in paragraph (c) below. If on the last
Page 3
<PAGE> 4
business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain
past payments, credits used and reductions in fees, and to a credit
against all future payments and fee reductions made under this paragraph
to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first
be applied to recover any payments, credits used and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar year
by increasing the amount of the monthly transfer agency fee next payable
in an amount equal to prior payments, credits used and fee reductions
made during such year, but not exceeding the sum of that month's credit
and credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects which would otherwise require a payment,
use of a credit or fee reduction to such Fund pursuant to paragraph (b)
above.
Article 4. Representations and Warranties of the Funds.
--------------------------------------------
Each of the Funds hereby represents and warrants on behalf of itself
only and not on behalf of any other Funds which are a party to this Agreement
that:
4.01 It is duly organized and existing and in good standing under the laws
of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to authorize
it to enter into and perform this Agreement.
4.04 It is an open-end, management investment company registered under the
Investment Company Act of 1940, as amended.
Page 4
<PAGE> 5
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
Article 5. Indemnification.
---------------
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities (collectively, "Losses") arising out of or attributable to:
(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided that ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS
by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying out by
ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless
such violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares
be made in general or to the residents of a particular state.
(e) Such Fund's refusal or failure to comply with the terms of this
Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder. Notwithstanding the foregoing, no Fund shall be required to
indemnify or hold ACCESS harmless from and against any Losses arising out
of or attributable to any action or failure to take action, or any
information, records or
Page 5
<PAGE> 6
documents prepared or maintained, on behalf of
the Fund by the Fund's investment adviser or distributor, or any person
providing fund accounting or legal services to the Fund that is also an
officer or employee of Van Kampen American Capital, Inc. or its
subsidiaries unless such person or entity is otherwise entitled to
indemnification from the Fund.
5.02 ACCESS shall indemnify and hold harmless each of the Funds from and
against any and all Losses arising out of or attributable to ACCESS' refusal or
failure to comply with the terms of this Agreement, or ACCESS' lack of good
faith, or its negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any of the
Funds for instructions, and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement,
and ACCESS shall not be liable and shall be indemnified by such concerned Fund
for any action taken or omitted by it in good faith in reasonable reliance upon
such instructions or upon the opinion of such counsel. ACCESS shall be
protected and indemnified in acting upon any paper or document reasonably
believed by ACCESS to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the concerned Fund.
ACCESS shall also be protected and indemnified in recognizing stock
certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event that any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim.
Page 6
<PAGE> 7
The party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6. Covenants of Each of the Funds and ACCESS.
------------------------------------------
6.01 Each of the Funds shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of its Board authorizing the
appointment of ACCESS and the execution and delivery of this Agreement.
(b) Certified copies of its Declaration of Trust or Articles of
Incorporation and by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
Page 7
<PAGE> 8
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned
Funds and to secure instructions from an authorized officer of each of the
concerned Funds as to such inspection. ACCESS reserves the right, however, to
exhibit such Fund Records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit such Fund records to such
person.
Article 7. Term and Termination Of Agreement.
----------------------------------
7.01 The initial term of this Agreement shall expire May 31, 1999,
and thereafter this Agreement shall automatically be renewed for
successive one year periods to begin on June 1 of each year unless any party
provides notice to the other party at least 120 days in advance of that date
that this Agreement is not to be renewed.
7.02 Notwithstanding the foregoing, any party may terminate this
Agreement for good and reasonable cause at any time by giving written
notice to the other party at least 60 days prior to the date on which such
termination is to be effective or such shorter period as may be required by
law.
7.03 Any unpaid fees or reimbursable expenses payable to ACCESS at
the termination date of this Agreement shall be due on that termination date.
ACCESS agrees to use its best efforts to cooperate with the Funds and the
successor transfer, dividend disbursement, or shareholder servicing agent
or agents in accomplishing an orderly transition.
Article 8. Miscellaneous.
--------------
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of
any of the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
Page 8
<PAGE> 9
8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of
the Funds for the acts and omissions of DST, Inc. or other qualified
servicer as it is for its own acts and omissions.
8.04 Without the prior approval of the Boards of Trustees of the
Funds, ACCESS shall not, directly or indirectly, provide services,
including services such as transfer agent, dividend disbursing agent or
shareholder service agent, to any investment companies.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
any prior agreement with respect thereto, whether oral or written, and
this Agreement may not be modified except by written instrument executed
by the affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the
Trustees of the Funds as Trustees and not individually and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Funds individually but are binding only
upon the assets and property of the Funds. A Certificate of Trust in
respect of each of the Funds is on file with the appropriate state
agency.
8.07 For each of those Funds which have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under
this Agreement shall apply only on a portfolio-by-portfolio basis and the
assets of one portfolio shall not be liable for the obligations of any
other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties
hereto agree to renegotiate such affected portions in good faith.
8.09 All questions concerning the validity, meaning and effect of
this Agreement shall be determined in accordance with the laws (without
giving effect to the conflict-of-law principles thereof) of the State of
Delaware applicable to contracts made and to be performed in that state.
8.10 (a) Any dispute, controversy, or claim arising out of or
relating to this Agreement, or the breach, termination or validity
thereof, shall be finally settled by arbitration in accordance with
the Expedited Procedures
Page 9
<PAGE> 10
of the commercial arbitration Rules of the American Arbitration
Association (the "AAA") then in effect (the "Rules"). The
arbitration shall be held in Chicago, Illinois.
(b) There shall be one arbitrator who shall be selected jointly by
the parties. If the parties are unable to agree on an arbitrator
within 15 days after a demand for arbitration is made by a party,
the arbitrator shall be appointed by the AAA in accordance with the
Rules. The hearing shall be held within 90 days of the appointment
of the arbitrator. Notwithstanding the Expedited Procedures
of the Rules, the arbitrator, at his discretion, may schedule
additional days of hearings.
(c) Either party may, without inconsistency with this Agreement,
seek from a court any interim or provisional relief in aid of
arbitration, pending the establishment of the arbitral tribunal.
The parties hereby submit to the exclusive jurisdiction of the
federal and state courts located in the northern district of the
state of Illinois for any such relief in aid of arbitration, or for
any relief relating to arbitration, except for the enforcement of an
arbitral award which may be enforced in any court having
jurisdiction.
(d) Any arbitration proceedings or award rendered hereunder and the
validity, effect and interpretation of Section 8.10 shall be
governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et
--
seq.) The award shall be final and binding upon the parties.
---
Judgment upon any award may be entered in any court having
jurisdiction.
(e) This Agreement and the rights and obligations of the Parties
shall remain in full force and effect pending the award in any
arbitration proceeding hereunder.
Page 10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN CAPITAL
OPEN END FUNDS LISTED ON SCHEDULE
"A" HERETO
BY: /s/ Ronald A. Nyberg
----------------------------------
Vice President
ATTEST:
/s/ Nicholas Dalmaso
- ----------------------------------
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ Paul R. Wolkenberg
---------------------------------
President and Chief Executive Officer
ATTEST:
/s/ Huey P. Falgout
- ---------------------------------
Assistant Secretary
Page 11
<PAGE> 12
SCHEDULE "A"
------------
VAN KAMPEN AMERICAN CAPITAL OPEN-END FUNDS
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Aggressive Growth Fund DE T
Van Kampen American Capital California Insured Tax Free Fund DE T
Van Kampen American Capital Comstock Fund DE T
Van Kampen American Capital Corporate Bond Fund DE T
Van Kampen American Capital Emerging Growth Fund DE T
Van Kampen American Capital Enterprise Fund DE T
Van Kampen American Capital Equity Income Fund DE T
Van Kampen American Capital Florida Insured Tax Free Income Fund DE T
Van Kampen American Capital Foreign Securities Fund DE T
Van Kampen American Capital Global Managed Assets Fund DE T
Van Kampen American Capital Government Securities Fund DE T
Van Kampen American Capital Government Target Fund DE T
Van Kampen American Capital Great American Companies Fund DE T
Van Kampen American Capital Growth Fund DE T
Van Kampen American Capital Growth and Income Fund DE T
Van Kampen American Capital Harbor Fund DE T
Van Kampen American Capital High Income Corporate Bond Fund DE T
Van Kampen American Capital High Yield Fund DE T
Van Kampen American Capital Insured Tax Free Income Fund DE T
Van Kampen American Capital Intermediate Term Municipal Income Fund DE T
</TABLE>
Page 12
<PAGE> 13
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Life Investment Trust DE T
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
Strategic Stock Portfolio
Van Kampen American Capital Limited Maturity Government Fund DE T
Van Kampen American Capital Municipal Income Fund DE T
Van Kampen American Capital New Jersey Tax Free Income Fund DE T
Van Kampen American Capital New York Tax Free Income Fund DE T
Van Kampen American Capital Pace Fund DE T
Van Kampen American Capital Pennsylvania Tax Free Income Fund PA T
Van Kampen American Capital Prospector Fund DE T
Van Kampen American Capital Real Estate Securities Fund DE T
Van Kampen American Capital Reserve Fund DE T
Van Kampen American Capital Short-Term Global Income Fund DE T
Van Kampen American Capital Small Capitalization Fund DE T
Van Kampen American Capital Strategic Income Fund DE T
Van Kampen American Capital Tax-Exempt Trust DE T
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Tax Free High Income Fund DE T
Van Kampen American Capital Tax Free Money Fund DE T
Van Kampen American Capital U.S. Government Fund DE T
Van Kampen American Capital U.S. Government Trust for Income DE T
Van Kampen American Capital Utility Fund DE T
Van Kampen American Capital Value Fund DE T
</TABLE>
PAGE 13
<PAGE> 14
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital World Portfolio Series Trust DE T
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities
Fund
</TABLE>
PAGE 14
<PAGE> 1
EXHIBIT (9)(b)
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, dated May 31, 1997, by and between the parties set
forth in Schedule A hereto (designated collectively hereafter as the "Funds")
and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").
W I T N E S S E T H:
WHEREAS, each of the Funds is registered as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Advisory Corp. has the capability of providing certain
accounting services to the Funds; and
WHEREAS, each desires to utilized Advisory Corp. in the provision of
such accounting services; and
WHEREAS, Advisory Corp. intends to maintain its staff in order to
accommodate the provision of all such services.
NOW THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:
1. Appointment of Advisory Corp.. As agent, Advisory Corp. shall provide
each of the Funds the accounting services ("Accounting Services") as set forth
in Paragraph 2 of this Agreement. Advisory Corp. accepts such appointment and
agrees to furnish the Accounting Services in return for the compensation
provided in Paragraph 3 of this Agreement.
2. Accounting Services to be Provided. Advisory Corp. will provide to each
respective Fund accounting related services in connection with the maintenance
of the financial records of such Fund, including without limitation: (i)
maintenance of the general ledger and other financial books and records; (ii)
processing of portfolio transactions; (iii) coordination of the valuation of
portfolio securities; (iv) calculation of the Fund's net asset value; (v)
coordination of financial and regulatory reporting; (vi) preparation of
financial reports for each Fund's Board of Trustees; (vii) coordination of tax
and financial compliance issues; (viii) the establishment and maintenance of
accounting policies; (ix) recommendations with respect to dividend policies; (x)
preparation of each Fund's financial reports and other accounting and tax
related notice information to shareholders; and (xi) the assimilation and
interpretation of accounting data for meaningful management review. Advisory
Corp. shall provide accurate maintenance of each Fund's financial books and
records as required by the applicable securities statutes and regulations, and
shall hire persons (collectively the "Accounting Service Group") as needed to
provide such Accounting Services.
<PAGE> 2
3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision of
the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.
The Accounting Services Expenses will be paid by Advisory Corp. and
reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.
4. Payment for Accounting Service Expenses Among the Funds. As to one
quarter (25%) of the Accounting Service Expenses incurred under the Agreement,
the expense shall be allocated between all Funds based on the number of classes
of shares of beneficial interest that each respective Fund has issued. As to the
remaining three quarters (75%) of the Accounting Service Expenses incurred under
the Agreement, the expense shall be allocated between all Funds based on their
relative net assets. For purposes of determining the percentage of expenses to
be allocated to any Fund, the liquidation preference of any preferred shares
issued by any such Fund shall not be considered a liability of such Fund for the
purposes of calculating relative net assets of such Fund.
5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will remain
the property of each respective Fund and will be preserved by Advisory Corp. for
the periods prescribed in Section 31 of the 1940 Act and the rules thereunder or
such other applicable rules that may be adopted from time to time under the act.
In the event of termination of the Agreement, such records will be promptly
delivered to the respective Funds. Such records may be inspected by the
respective Funds at reasonable times.
6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any
Fund for any action taken or thing done by it or its agents or contractors on
behalf of the fund in carrying out the terms and provisions of the Agreement if
done in good faith and without gross negligence or misconduct on the part of
Advisory Corp., its agents or contractors.
7. Indemnification By Funds. Each Fund will indemnify and hold Advisory
Corp. harmless from all lost, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Advisory Corp. resulting from: (a) any
claim, demand, action or suit in connection with Advisory Corp.'s acceptance of
this Agreement; (b) any action or omission by Advisory Corp. in the performance
of its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed
by it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions constituting
gross negligence or willful misconduct of Advisory Corp. or its agents or
contractors. Prior to confessing any claim against it which may be subject to
this indemnification, Advisory Corp. shall give the Fund reasonable opportunity
to defend against said claim in its own name or in the name of Advisory Corp.
8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and
hold harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided that
such negligence or misconduct is not attributable to the Funds, their agents or
contractors. Prior to confessing any claim against it which may be subject to
this indemnification, the Fund shall give Advisory Corp. reasonable opportunity
to defend against said claim in its own name or in the name of such Fund.
<PAGE> 3
9. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Dual Interests. It is understood that some person or persons may be
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
11. Execution, Amendment and Termination. The term of this Agreement shall
begin as of the date first above written, and unless sooner terminated as herein
provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or amended
from time to time by mutual agreement between the parties hereto and may be
terminated after May, 1998, by at least sixty (60) days' written notice given by
one party to the others. Upon termination hereof, each Fund shall pay to
Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement may
be amended in the future to include as additional parties to the Agreement other
investment companies for with Advisory Corp., any subsidiary or affiliate serves
as investment advisor or distributor if such amendment is approved by the
President of each Fund.
12. Assignment. Any interest of Advisory Corp. under this Agreement shall
not be assigned or transferred, either voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of the Funds.
This Agreement shall automatically and immediately terminate in the event of its
assignment without the prior written consent of the Funds.
13. Notice. Any notice under this Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt of
such notices. Until further notice to the other parties, it is agreed that for
this purpose the address of each Fund is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, Attention: President and that of Advisory Corp. for this purpose
is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attention: President.
14. Personal Liability. As provided for in the Agreement and Declaration of
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and other
agents of the Fund shall not personally be found by or liable for the matters
set forth hereto, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
15. Interpretative Provisions. In connection with the operation of this
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.
16. State Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Illinois.
17. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this amended and restated
Agreement to be executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
<PAGE> 5
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 6
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust"
or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities
Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
<PAGE> 7
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of
its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust") on behalf of its
series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 8
AMENDMENT NUMBER ONE
TO THE
FUND ACCOUNTING AGREEMENT
THIS AMENDMENT NUMBER ONE, dated July 24, 1997, to the Fund Accounting
Agreement dated May 31, 1997 (the "Agreement") by and between the parties set
forth in Schedule A, attached hereto and incorporated by reference and VAN
KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware corporation
("Advisory Corp.").
W I T N E S S E T H
WHEREAS, the following party, being an open-end management investment
company as that term is defined in the Investment Company Act of 1940, as
amended, wishes to become party to the Agreement:
ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. ("ASSET
MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL FUNDS"):
Van Kampen American Capital Life Investment Trust ("Life Investment
Trust" or "LIT") on behalf of its Series
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
WHEREAS, the original parties desire to add the aforementioned
additional entity as party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule A of
the Agreement be amended to add the party mentioned above as party to the
Agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
-----------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
-----------------------------------------
Dennis J. McDonnell, President
<PAGE> 10
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California
Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey
Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania
Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 11
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust"
or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities
Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf
of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
<PAGE> 12
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of
its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust") on behalf of its
series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 13
AMENDMENT NUMBER TWO
TO THE
FUND ACCOUNTING AGREEMENT
THIS AMENDMENT NUMBER TWO, dated April 23, 1998, to the Fund Accounting
Agreement dated May 31, 1997 (the "Agreement") by and between the parties set
forth in Schedule A, attached hereto and incorporated by reference and VAN
KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware corporation
("Advisory Corp.").
W I T N E S S E T H
WHEREAS, the following party, being an open-end management investment
company as that term is defined in the Investment Company Act of 1940, as
amended, wishes to become party to the Agreement:
ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC."):
Van Kampen American Capital Life Investment Trust ("Life Investment
Trust" or "LIT") on behalf of its Series
Comstock Portfolio ("LIT Comstock Portfolio")
WHEREAS, the original parties desire to add the aforementioned
additional entity as party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule A of
the Agreement be amended to add the party mentioned above as party to the
Agreement.
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
<PAGE> 15
SCHEDULE A
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
CLOSED END FUNDS
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California
Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey
Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania
Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
Van Kampen American Capital Senior Income Trust
INSTITUTIONAL FUNDS
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
("MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 16
OPEN END FUNDS
III. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL
FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed
Assets Funds")
Van Kampen American Capital Government Securities Fund ("Government
Securities Fund")
Van Kampen American Capital Government Target Fund ("Government Target
Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income
Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust"
or "LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Morgan Stanley Real Estate Securities Portfolio ("LIT Morgan Stanley
Real Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small
Capitalization Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf
of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
<PAGE> 17
IV. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN
FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of
its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High
Income Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax
Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California
Tax Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust") on behalf of its
series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth
Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities
Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 79, to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 29, 1998, relating to the financial statements and financial highlights
of Van Kampen American Capital Harbor Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
and "Independent Accountants" in such Prospectus and to the reference to us
under the heading "Independent Accountants" in such Statement of Additional
Information.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
April 27, 1998
<PAGE> 1
EXHIBIT 16
HARBOR FUND - CLASS A SHARES
Total Return Calculation One Year Period Ended December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,101.74 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 10.17% = T
Excluding Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,169.09 = ERV
One-year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 16.91% = T
Total Return Calculation Five Years Ended December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,607.32 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 9.96% = T
Excluding Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,705.15 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 11.26% = T
<PAGE> 2
HARBOR FUND - CLASS A SHARES
Total Return Calculation Ten Years Ended December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $3,016.11 = ERV
Ten years ended 12/31/97 10 = n
TOTAL RETURN FOR THE PERIOD 11.67% = T
Excluding Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $3,199.89 = ERV
Ten years ended 12/31/97 10 = n
TOTAL RETURN FOR THE PERIOD 12.33% = T
Total Return Calculation Inception Through December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $47,369.93 = ERV
Inception through 12/31/97 41.13 = n
TOTAL RETURN FOR THE PERIOD 9.83% = T
Excluding Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $50,263.05 = ERV
Inception through 12/31/97 41.13 = n
TOTAL RETURN FOR THE PERIOD 9.99% = T
<PAGE> 3
HARBOR FUND - CLASS A SHARES
Non-Standardized Cumulative Total Return Calculation
Inception Through December 31, 1997
Formula
ERV - P
-------
P = T
Including Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $47,369.93 = ERV
TOTAL RETURN FOR THE PERIOD 4636.99% = T
Excluding Payment of the Sales Charge
Net Asset Value $15.06
Initial Investment $1,000.00 = P
Ending Redeemable Value $50,263.05 = ERV
TOTAL RETURN FOR THE PERIOD 4926.30% = T
<PAGE> 4
HARBOR FUND - CLASS B SHARES
Total Return Calculation One Year Period Ended December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,109.86 = ERV
One-year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 10.99% = T
Excluding Payment of the CDSC
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,159.83 = ERV
One-year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 15.98% = T
Total Return Calculation Five Years Ended December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,624.53 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 10.19% = T
Excluding Payment of the Sales Charge
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,639.53 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 10.39% = T
<PAGE> 5
HARBOR FUND - CLASS B SHARES
Total Return Calculation Inception Through December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.12 = ERV
Inception through 12/31/97 6.03 = n
TOTAL RETURN FOR THE PERIOD 10.77% = T
Excluding Payment of the CDSC
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.12 = ERV
Inception through 12/31/97 6.03 = n
TOTAL RETURN FOR THE PERIOD 10.77% = T
Non-Standarized Cumulative Total Return Calculation
Inception Through December 31, 1997
Formula ERV-P = T
-------
Including Payment of the CDSC P
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.12 = ERV
TOTAL RETURN FOR THE PERIOD 85.31% = T
Excluding Payment of the CDSC
Net Asset Value $14.98
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,853.12 = ERV
TOTAL RETURN FOR THE PERIOD 85.31% = T
<PAGE> 6
HARBOR FUND - CLASS C SHARES
Total Return Calculation One Year Period Ended December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $15.08
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,149.59 = ERV
One-year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 14.96% = T
Excluding Payment of the CDSC
Net Asset Value $15.08
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,159.59 = ERV
One-year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 15.96% = T
Total Return Calculation Inception Through December 31, 1997
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $15.08
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,468.57 = ERV
Inception through 12/31/97 4.18 = n
TOTAL RETURN FOR THE PERIOD 9.63% = T
Excluding Payment of the CDSC
Net Asset Value $15.08
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,468.57 = ERV
Inception through 12/31/97 4.18 = n
TOTAL RETURN FOR THE PERIOD 9.63% = T
<PAGE> 7
HARBOR FUND - CLASS C SHARES
Non-Standardized Cumulative Total Return Calculation
Inception Through December 31, 1997
Formula
ERV - P
-------
P = T
Including Payment of the CDSC
Net Asset Value $15.08
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,468.57 = ERV
TOTAL RETURN FOR THE PERIOD 46.86% = T
Excluding Payment of the CDSC
Net Asset Value $15.08
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,468.57 = ERV
TOTAL RETURN FOR THE PERIOD 46.86% = T
<PAGE> 1
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open-End Trusts (individually, a "Trust") as indicated on
Schedule 1 attached hereto and incorporated by reference, each a Delaware
business trust except for the Van Kampen American Capital Pennsylvania Tax Free
Income Fund being a Pennsylvania business trust, and being officers and
directors of the Morgan Stanley Fund, Inc. (the "Corporation"), a Maryland
Corporation, do hereby, in the capacities shown below, individually appoint
Dennis J. McDonnell and Ronald A. Nyberg, each of Oakbrook Terrace, Illinois,
and each of them, as the agents and attorneys-in-fact with full power of
substitution and resubstitution, for each of the undersigned, to execute and
deliver, for and on behalf of the undersigned, any and all amendments to the
Registration Statement filed by each Trust or the Corporation with the
Securities and Exchange Commission pursuant to the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.
Dated: April 28, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS J. MCDONNELL President and Trustee/Director
- -----------------------------------------------------
Dennis J. McDonnell
/s/ EDWARD C. WOOD III Vice President and Chief Financial Officer
- -----------------------------------------------------
Edward C. Wood III
/s/ J. MILES BRANAGAN Trustee/Director
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI
- ----------------------------------------------------- Trustee/Director
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY Trustee/Director
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY Trustee/Director
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON Trustee/Director
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL
- ----------------------------------------------------- Trustee/Director
Don G. Powell
/s/ PHILLIP ROONEY Trustee/Director
- -----------------------------------------------------
Phillip Rooney
/s/ FERNANDO SISTO, SC.D. Trustee/Director
- -----------------------------------------------------
Fernando Sisto, Sc.D.
/s/ WAYNE W. WHALEN Trustee/Director and Chairman
- -----------------------------------------------------
Wayne W. Whalen
</TABLE>
<PAGE> 2
SCHEDULE 1
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Harbor Class A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 410,734,666<F1>
<INVESTMENTS-AT-VALUE> 458,318,805<F1>
<RECEIVABLES> 12,324,941<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 47,091<F1>
<TOTAL-ASSETS> 470,690,837<F1>
<PAYABLE-FOR-SECURITIES> 2,235,030<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 6,121,112<F1>
<TOTAL-LIABILITIES> 8,356,142<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 322,661,130
<SHARES-COMMON-STOCK> 24,997,425
<SHARES-COMMON-PRIOR> 24,783,565
<ACCUMULATED-NII-CURRENT> 1,807,183<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,507,515<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 47,584,139<F1>
<NET-ASSETS> 376,442,973
<DIVIDEND-INCOME> 7,614,260<F1>
<INTEREST-INCOME> 13,976,440<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (5,527,490)<F1>
<NET-INVESTMENT-INCOME> 16,063,210<F1>
<REALIZED-GAINS-CURRENT> 54,691,941<F1>
<APPREC-INCREASE-CURRENT> 1,495,425<F1>
<NET-CHANGE-FROM-OPS> 72,250,576<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (16,890,943)
<DISTRIBUTIONS-OF-GAINS> (39,111,920)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,596,353
<NUMBER-OF-SHARES-REDEEMED> (7,461,163)
<SHARES-REINVESTED> 3,078,670
<NET-CHANGE-IN-ASSETS> 3,343,894
<ACCUMULATED-NII-PRIOR> 1,590,591<F1>
<ACCUMULATED-GAINS-PRIOR> 2,071,254<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,510,215<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 5,527,490<F1>
<AVERAGE-NET-ASSETS> 381,097,078
<PER-SHARE-NAV-BEGIN> 15.054
<PER-SHARE-NII> 0.600
<PER-SHARE-GAIN-APPREC> 1.854
<PER-SHARE-DIVIDEND> (0.730)
<PER-SHARE-DISTRIBUTIONS> (1.719)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.059
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> HARBOR CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997<F1>
<PERIOD-START> JAN-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 410,734,666<F1>
<INVESTMENTS-AT-VALUE> 458,318,805<F1>
<RECEIVABLES> 12,324,941<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 47,091<F1>
<TOTAL-ASSETS> 470,690,837<F1>
<PAYABLE-FOR-SECURITIES> 2,235,030<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 6,121,112<F1>
<TOTAL-LIABILITIES> 8,356,142<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,120,868
<SHARES-COMMON-STOCK> 5,426,072
<SHARES-COMMON-PRIOR> 5,264,665
<ACCUMULATED-NII-CURRENT> 1,807,183<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,507,515<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 47,584,139<F1>
<NET-ASSETS> 81,289,568
<DIVIDEND-INCOME> 7,614,260<F1>
<INTEREST-INCOME> 13,976,440<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (5,527,490)<F1>
<NET-INVESTMENT-INCOME> 16,063,210<F1>
<REALIZED-GAINS-CURRENT> 54,691,941<F1>
<APPREC-INCREASE-CURRENT> 1,495,425<F1>
<NET-CHANGE-FROM-OPS> 72,250,576<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,045,626)
<DISTRIBUTIONS-OF-GAINS> (8,428,584)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 702,695
<NUMBER-OF-SHARES-REDEEMED> (1,201,555)
<SHARES-REINVESTED> 660,267
<NET-CHANGE-IN-ASSETS> 2,362,351
<ACCUMULATED-NII-PRIOR> 1,590,591<F1>
<ACCUMULATED-GAINS-PRIOR> 2,071,254<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,510,215<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 5,527,490<F1>
<AVERAGE-NET-ASSETS> 81,827,243
<PER-SHARE-NAV-BEGIN> 14.992
<PER-SHARE-NII> 0.470
<PER-SHARE-GAIN-APPREC> 1.848
<PER-SHARE-DIVIDEND> (0.610)
<PER-SHARE-DISTRIBUTIONS> (1.719)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.981
<EXPENSE-RATIO> 1.82
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> HARBOR CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 410,734,666<F1>
<INVESTMENTS-AT-VALUE> 458,318,805<F1>
<RECEIVABLES> 12,324,941<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 47,091<F1>
<TOTAL-ASSETS> 470,690,837<F1>
<PAYABLE-FOR-SECURITIES> 2,235,030<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 6,121,112<F1>
<TOTAL-LIABILITIES> 8,356,142<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,653,860
<SHARES-COMMON-STOCK> 305,181
<SHARES-COMMON-PRIOR> 236,225
<ACCUMULATED-NII-CURRENT> 1,807,183<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,507,515<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 47,584,139<F1>
<NET-ASSETS> 4,602,154
<DIVIDEND-INCOME> 7,614,260<F1>
<INTEREST-INCOME> 13,976,440<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (5,527,490)<F1>
<NET-INVESTMENT-INCOME> 16,063,210<F1>
<REALIZED-GAINS-CURRENT> 54,691,941<F1>
<APPREC-INCREASE-CURRENT> 1,495,425<F1>
<NET-CHANGE-FROM-OPS> 72,250,576<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (158,576)
<DISTRIBUTIONS-OF-GAINS> (466,649)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 95,609
<NUMBER-OF-SHARES-REDEEMED> (58,685)
<SHARES-REINVESTED> 32,032
<NET-CHANGE-IN-ASSETS> 1,040,091
<ACCUMULATED-NII-PRIOR> 1,590,591<F1>
<ACCUMULATED-GAINS-PRIOR> 2,071,254<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,510,215<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 5,527,490<F1>
<AVERAGE-NET-ASSETS> 4,037,851
<PER-SHARE-NAV-BEGIN> 15.079
<PER-SHARE-NII> 0.448
<PER-SHARE-GAIN-APPREC> 1.882
<PER-SHARE-DIVIDEND> (0.610)
<PER-SHARE-DISTRIBUTIONS> (1.719)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.080
<EXPENSE-RATIO> 1.82
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
