<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
REGISTRATION NOS. 2-90482
811-4003
================================================================================
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. 23 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 24 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES 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, ILLINOIS 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 285.
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 GOVERNMENT SECURITIES FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM
PART A PROSPECTUS CAPTION
- -------------- ------------------
<S> <C> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund; Investment Objective and
Policies; Investment Practices; Description
of Shares of the Fund
5. Management of the Fund..................... Annual Fund Operating Expenses and Example;
The Fund; Investment Practices;
Investment Advisory Services; Inside Back
Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Purchase of Shares; Shareholder Services;
Distribution and Service Plans;
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
PART B
- ------------------------------------------------ STATEMENT OF ADDITIONAL INFORMATION
-------------------------------------------
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Objective and Policies; Option,
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
PART C
- ------------------------------------------------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Government Securities 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 investors with a
high current return consistent with preservation of capital. The Fund seeks to
achieve its investment objective by investing substantially all of its total
assets in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may purchase or sell options and engage
in transactions involving interest rate futures contracts and options on such
contracts only for bona fide hedging purposes. 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............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 11
Investment Objective and Policies........................... 11
Investment Practices........................................ 16
Investment Advisory Services................................ 21
Alternative Sales Arrangements.............................. 23
Purchase of Shares.......................................... 26
Shareholder Services........................................ 35
Redemption of Shares........................................ 40
Distribution and Service Plans.............................. 43
Distributions from the Fund................................. 45
Tax Status.................................................. 46
Fund Performance............................................ 49
Description of Shares of the Fund........................... 51
Additional Information...................................... 52
</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 Government Securities 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 to provide
high current return consistent with preservation of capital. There is no
assurance that the Fund will achieve its investment objective. See "Investment
Objective and Policies."
INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing substantially all of its total assets in debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund's
current operating policy is to maintain a portfolio duration of three to eight
years. The Fund may sell (write) and purchase call and put options, and may
purchase and sell interest rate futures contracts and options on such contracts
only for bona fide hedging purposes. The Fund may purchase or sell U.S.
Government securities on a forward commitment basis and enter into interest rate
swaps and may purchase or sell interest rate caps, floors and collars. See
"Investment Practices -- 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 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge ("CDSC") of 1.00% may be imposed on certain
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 4.00% on redemptions made within the first or
second 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.
RISK FACTORS. The market prices of debt securities, including U.S. Government
securities, generally fluctuate inversely with changes in interest rates. The
Fund's net asset value can be expected to decrease as interest rates rise. The
Fund's net asset value can be expected to increase as interest rates fall,
although such increases may be limited (i) to the extent the Fund invests in
mortgage-related securities and (ii) by the sale of options. Varying economic
and market conditions may affect the value of, and yields on, debt securities
owned by the Fund. Although the Fund's current operating policy is to maintain a
portfolio duration of three to eight years, the Fund is not limited as to the
maturities of individual securities in which it may invest. The Fund may
purchase or sell U.S. Government securities on a forward commitment basis,
purchase or sell options and engage in transactions involving interest rate
futures contracts and options on such contracts, and may lend its portfolio
securities. The Fund may enter into interest rate swaps and may purchase or sell
interest rate caps, floors and collars. Each of such activities may subject the
Fund to additional risks. Depending on market conditions, the Fund may be able
to reinvest prepayments passed through to it with respect to mortgage-backed
securities only at a lower yielding investment rate. Shares of the Fund are not
insured or guaranteed by the U.S. Government, its agencies or instrumentalities
or by any other person or entity. See "Investment Objective and
Policies -- General," "-- U.S. Government Securities" and "-- Other Government
Related Securities," "Investment Practices -- Forward Commitments," "-- Lending
of Securities," "-- Interest Rate Transactions" and "-- Options, Futures
Contracts and Related Options."
4
<PAGE> 7
DISTRIBUTIONS FROM THE FUND. Income dividends are declared daily and paid
monthly. Capital gains, if any, are distributed at least annually. All dividends
and distributions are automatically reinvested in shares of the Fund at net
asset value per share (without sales charge) unless payment in cash is
requested. A portion of the dividends and distributions paid may constitute a
return of capital for federal income tax purposes. See "Distributions from the
Fund" and "Tax Status."
The foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in the Prospectus.
5
<PAGE> 8
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
----------------------------------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price).................. 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering price).... None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or Year
redemption proceeds)............. None(2) Year 1--4.00% 1--1.00%
Year 2--4.00% After-None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage of
amount redeemed)................. None None None
Exchange fee....................... None None None
</TABLE>
- ------------------------------------------------------------------------------
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Class A Shares."
6
<PAGE> 9
- ------------------------------------------------------------------------------
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).......................... 0.52% 0.52% 0.52%
12b-1 Fees (as a percentage of average daily
net assets)(1)............................. 0.25% 1.00%(2) 1.00%(2)
Other Expenses (as a percentage of average
daily net assets).......................... 0.26% 0.26% 0.27%
Total Fund Operating Expenses (as a
percentage of average daily net assets).... 1.03% 1.78% 1.79%
</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.
7
<PAGE> 10
<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 1.03% for
Class A shares, 1.78% for Class B shares
and 1.79% for Class C shares, (ii) a
5.00% annual return and (iii) redemption
at the end of each time period:
Class A............................... $58 $79 $102 $167
Class B............................... $58 $86 $111 $190*
Class C............................... $28 $56 $ 97 $211
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $58 $79 $102 $167
Class B............................... $18 $56 $ 96 $190*
Class C............................... $18 $56 $ 97 $211
</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."
8
<PAGE> 11
- --------------------------------------------------------------------------------
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 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
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............... $10.045 $10.55 $9.67 $10.80 $10.75 $10.95 $10.27
-------- -------- -------- -------- -------- -------- --------
Net Investment Income................................. 0.659 0.689 0.67 0.66 0.80375 0.90 0.90
Net Realized and Unrealized Gain/Loss................. .215 (0.504) 0.8985 (1.1145) 0.05 (0.2225) 0.68
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations....................... 0.874 0.185 1.5685 (0.4545) 0.85375 0.6775 1.58
Less Distributions from Net Investment Income.......... 0.660 0.690 0.6885 0.6755 0.80375 0.8775 0.90
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period..................... $10.259 $10.045 $10.55 $ 9.67 $10.80 $10.75 $10.95
======== ======== ======== ======== ======== ======== ========
Total Return(a)........................................ 9.16% 1.90% 16.77% (4.26%) 8.15% 6.56% 16.28%
Net Assets at End of the Period (In millions).......... $1,930.4 $2,156.4 $2,544.5 $2,578.7 $3,418.8 $3,635.3 $3,871.5
Ratio of Expenses to Average Net Assets(b)............. 1.03% 1.06% 1.01% 1.02% 0.98% 0.97% 0.96%
Ratio of Net Investment Income to Average Net
Assets(b)............................................. 6.62% 6.88% 6.62% 6.96% 7.73% 8.42% 8.65%
Portfolio Turnover..................................... 114% 271% 231% 306% 239% 239% 131%
<CAPTION>
------------------------------
CLASS A SHARES
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period............... $10.37 $ 9.98 $10.31
-------- -------- --------
Net Investment Income................................. 0.95 1.00 1.00
Net Realized and Unrealized Gain/Loss................. (0.12) 0.41 (0.31)
-------- -------- --------
Total from Investment Operations....................... 0.83 1.41 0.69
Less Distributions from Net Investment Income.......... 0.93 1.02 1.02
-------- -------- --------
Net Asset Value, End of the Period..................... $10.27 $10.37 $ 9.98
======== ======== ========
Total Return(a)........................................ 8.71% 14.91% 6.94%
Net Assets at End of the Period (In millions).......... $3,887.1 $4,661.5 $5,231.6
Ratio of Expenses to Average Net Assets(b)............. 0.93% 0.90% 0.82%
Ratio of Net Investment Income to Average Net
Assets(b)............................................. 9.56% 9.88% 9.74%
Portfolio Turnover..................................... 177% 9% 34%
</TABLE>
(Table continued on following page)
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to the Adviser's
reimbursement of certain expenses was less than 0.01%.
9
<PAGE> 12
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
------------------------------------------------------------ -----------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------------------------------ -----------------
1997(A) 1996 1995 1994 1993 1992(A)(D) 1997(A) 1996
------- ------- ------- -------- ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period... $10.050 $ 10.56 $ 9.68 $ 10.80 $10.75 $10.95 $10.031 $ 10.54
------- ------- ------- -------- ------ ------ ------- -------
Net Investment Income..................... 0.588 0.635 0.60 0.60 0.74 0.76 0.587 0.623
Net Realized and Unrealized Gain/Loss..... 0.211 (0.527) 0.8965 (1.1275) 0.03 (0.165) 0.209 (0.514)
------- ------- ------- -------- ------ ------ ------- -------
Total from Investment Operations........... 0.799 0.108 1.4965 (0.5275) 0.77 0.595 0.796 0.109
------- ------- ------- -------- ------ ------ ------- -------
Less Distributions from Net Investment
Income.................................... 0.588 0.618 0.6165 0.5925 0.72 0.795 0.588 0.618
------- ------- ------- -------- ------ ------ ------- -------
Net Asset Value, End of the Period......... $10.261 $10.050 $ 10.56 $ 9.68 $10.80 $10.75 $10.239 $10.031
======= ======= ======= ======== ====== ====== ======= =======
Total Return(b)............................ 8.27% 1.17% 15.93% (4.95%) 7.31% 5.74% 8.28% 1.18%
Net Assets at end of the Period (In
millions)................................. $ 199.2 $ 236.7 $ 285.5 $ 278.7 $368.4 $236.6 $ 16.4 $ 21.6
Ratio of Expenses to Average Net
Assets(c)................................. 1.78% 1.82% 1.77% 1.78% 1.74% 1.74% 1.79% 1.82%
Ratio of Net Investment Income to Average
Net Assets(c)............................. 5.87% 6.13% 5.86% 6.20% 7.21% 7.20% 5.87% 6.12%
Portfolio Turnover......................... 114% 271% 231% 306% 239% 239% 114% 271%
<CAPTION>
CLASS C SHARES
-------------------------------------
MARCH 10,
1993
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, DISTRIBUTION) TO
------------------ DECEMBER 31,
1995 1994 1993(A)
------- -------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period... $ 9.66 $ 10.79 $ 10.94
------- -------- --------
Net Investment Income..................... 0.60 0.60 0.69
Net Realized and Unrealized Gain/Loss..... 0.8965 (1.1375) (0.3055)
------- -------- --------
Total from Investment Operations........... 1.4965 (0.5375) 0.3845
------- -------- --------
Less Distributions from Net Investment
Income.................................... 0.6165 0.5925 0.5345
------- -------- --------
Net Asset Value, End of the Period......... $ 10.54 $ 9.66 $ 10.79
======= ======== ========
Total Return(b)............................ 15.96% (5.05%) 3.58%*
Net Assets at end of the Period (In
millions)................................. $ 26.8 $ 32.0 $ 39.0
Ratio of Expenses to Average Net
Assets(c)................................. 1.77% 1.78% 1.72%
Ratio of Net Investment Income to Average
Net Assets(c)............................. 5.86% 6.24% 7.54%
Portfolio Turnover......................... 231% 306% 239%
</TABLE>
- ------------
* Non-Annualized
(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) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to the Adviser's
reimbursement of certain expenses was less than 0.01%.
(d) Sales of Class B shares commenced on December 20, 1991 at a net asset value
of $10.86 per share. At December 31, 1991, there were 16,980 Class B shares
outstanding with a per share net asset value of $10.95. 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.
10
<PAGE> 13
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
GENERAL. The Fund's investment objective is to seek to provide investors with
a high current return consistent with preservation of capital. The Fund seeks to
achieve its investment objective by investing substantially all of its total
assets in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Under normal circumstances, at least 80% of the
total assets of the Fund are invested in such securities. The Fund may invest up
to 20% of its total assets in mortgage-related and mortgage-backed securities
and certificates issued by financial institutions or broker-dealers representing
"stripped" U.S. Government securities. The Fund may purchase or sell options and
engage in transactions involving interest rate futures contracts and options on
such contracts only for bona fide hedging purposes. The Fund may purchase or
sell U.S. Government securities on a forward commitment basis and enter into
interest rate swaps and may purchase or sell interest rate caps, floors and
collars. The Fund is not designed for investors seeking capital appreciation.
Shares of the Fund are not insured or guaranteed by the U.S. Government, its
agencies or instrumentalities or by any other person or entity. There is no
assurance that the Fund will achieve its investment objective.
The prices of debt securities generally vary inversely with interest rates. If
interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. Debt securities with longer
maturities generally offer higher yields than shorter-maturity debt securities,
all other factors, including credit quality, being equal. For a given change in
interest rates, the market prices of longer-maturity debt securities generally
fluctuate more in price than shorter-maturity debt securities. This potential
for a decline in prices of debt securities due to rising interest rates is
referred to herein as "market risk."
11
<PAGE> 14
The Fund's current operating policy is to generally maintain a portfolio
duration of three to eight years. The Fund has no policy limiting the maturities
of the individual debt securities in which it may invest. Duration is a measure
of the expected life of a debt security on a present value basis expressed in
years that incorporates a debt security's yield, coupon interest payments, final
maturity and call features into one measure. Traditionally, a debt security's
"term to maturity" has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the "interest rate risk"
or "price volatility" of the security). However, "term to maturity" measures
only the time until a debt security provides its final payment taking no account
of the pattern of the security's payments of interest or principal prior to
maturity. Duration is a function of the length of the time interval between the
present and the time when each payment of interest and principal is scheduled to
be received (or in the case of a callable bond, expected to be received),
weighing such payments by the present value of the cash to be received at each
future point in time. In general, the lower the coupon rate of interest, the
longer the maturity, or the lower the yield-to-maturity of a debt security, the
longer its duration; conversely, the higher the coupon rate of interest, the
shorter the maturity or the higher the yield-to-maturity of a debt security, the
shorter its duration. With respect to certain securities, there are some
situations where even the standard duration calculation does not properly
reflect the interest rate exposure of a security. In these and other similar
situations, the Adviser will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
interest rate exposure. At December 31, 1997, the average maturity of the debt
securities owned by the Fund, as adjusted for investments in options, futures
contracts and related options, was approximately 6.2 years and the duration of
the portfolio was approximately 4.9 years. The duration of the Fund's portfolio
is likely to vary from time to time.
The Fund generally purchases debt securities at a premium over the principal
or face value in order to obtain higher current income. The amount of any
premium declines during the term of the security to zero at maturity. Such
decline generally is reflected in the market price of the security and thus in
the Fund's net asset value. Any such decline is realized for accounting purposes
as a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.
The Fund may purchase or sell options and engage in transactions involving
interest rate futures contracts and options on such contracts only for bona fide
hedging purposes. By selling options, the Fund reduces its potential for capital
appreciation on debt securities if interest rates decline. Thus, if market
prices of debt securities increase, the Fund receives less total return from its
optioned positions than it would have received if the options had not been sold.
The purchase and sale of options may result in a higher portfolio turnover rate
than if the Fund had not purchased or sold options.
12
<PAGE> 15
The investment objective of the Fund cannot be changed without shareholder
approval; however, the investment policies set forth in this section of the
Prospectus may be changed by the Trustees of the Fund without shareholder
approval.
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.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities include: (1) U.S. Treasury
obligations, which differ in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturity of one to ten years), and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are backed by the full faith
and credit of the United States; and (2) obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including government guaranteed
mortgage-related securities, some of which are backed by the full faith and
credit of the U.S. Treasury, some of which are supported by the right of the
issuer to borrow from the U.S. Government and some of which are backed only by
the credit of the issuer itself.
Mortgage loans made by banks, savings and loan institutions, and other lenders
are often assembled into pools, which are issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the U.S.
Government itself. Interests in such pools are what this Prospectus calls
"mortgage-related securities."
Mortgage-related securities include, but are not limited to, obligations
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA is a wholly-owned corporate instrumentality
of the United States whose securities and guarantees are backed by the full
faith and credit of the United States. FNMA, a federally chartered and
privately-owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the United States. The securities and guarantees of FNMA
and FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States. Although the Secretary of the Treasury of the United
States has discretionary authority to lend amounts to FNMA up to certain
specified limits, neither the United States nor any agency thereof is obligated
to finance FNMA's or FHLMC's operations or to assist FNMA or FHLMC in any other
manner. Securities of FNMA and FHLMC include those issued in principal only or
interest only components.
Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who received the
underlying
13
<PAGE> 16
mortgage loans. The payments to the securityholders (such as the Fund), like the
payments on the underlying loans, represent both principal and interest.
Although the underlying mortgage loans are for specified periods of time, such
as 20 or 30 years, the borrowers can, and typically do, pay them off sooner.
Thus, the securityholders frequently receive prepayments of principal, in
addition to the principal which is part of the regular monthly payment. A
borrower is more likely to prepay a mortgage which bears a relatively high rate
of interest. This means that in times of declining interest rates, some of the
Fund's higher yielding securities might be converted to cash, and the Fund will
be forced to accept lower interest rates when that cash is used to purchase
additional securities. The increased likelihood of prepayment when interest
rates decline also limits market price appreciation of mortgage-related
securities. If the Fund buys mortgage-related securities at a premium, mortgage
foreclosures or mortgage prepayments may result in a loss to the Fund of up to
the amount of the premium paid since only timely payment of principal and
interest is guaranteed.
OTHER GOVERNMENT RELATED SECURITIES. The Fund may invest up to 20% of its
assets in other government related securities and in repurchase agreements fully
collateralized by U.S. Government securities.
Two principal types of government related securities in which the Fund may
invest are mortgage-backed securities including collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").
CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
REMICs are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Fund will invest in such
privately issued securities only if they are 100% collateralized at the time of
issuance by securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. The Fund intends to invest in privately issued CMOs and
REMICs only if they are rated at the time of purchase in the two highest grades
by a nationally-recognized rating agency.
14
<PAGE> 17
STRIPPED SECURITIES. Stripped mortgage-related securities (hereinafter
referred to as "Stripped Mortgage Securities") are derivative multiclass
mortgage securities. Stripped Mortgage Securities may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing.
Stripped Mortgage Securities usually are structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of Stripped Mortgage Securities will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa.
Holders of PO securities are not entitled to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and are subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Current federal tax law
requires that a holder (such as the Fund) of such securities accrue a portion of
the discount at which the security was purchased as income each year even though
the holder receives no interest payment in cash on the certificate during the
year. Such securities may involve greater risk than securities issued directly
by the U.S. Government, its agencies or instrumentalities.
Although the market for government-issued IO and PO securities backed by
fixed-rate mortgages is increasingly liquid, certain of such securities may not
be readily marketable and will be considered illiquid for purposes of the Fund's
limitation on investments in illiquid securities. The trustees of the Fund will
establish guidelines and standards for determining whether a particular
government-issued IO or PO backed by fixed-rate mortgages is liquid. Generally,
such a security may be deemed liquid if it can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of the net asset value per share. Stripped Mortgage Securities,
other than government-issued IO and PO securities backed by fixed-rate
mortgages, are presently considered by the staff of the SEC to be illiquid
securities and thus subject to the Fund's limitation on investment in illiquid
securities.
15
<PAGE> 18
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's 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 to 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.
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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 a default by the other party. The Fund will not invest in
repurchase agreements that do not mature within more than seven days if any such
investment, together with any other illiquid securities held by the Fund,
exceeds 10% of the value of its net assets. In the event of the bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and 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.
16
<PAGE> 19
FORWARD COMMITMENTS. The Fund may purchase or sell U.S. Government securities
on a "when-issued" or "delayed delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, frequently a month or more
after such transaction. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment takes place. At the time of settlement,
the market value of the securities may be more or less than the purchase or sale
price. The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment.
When engaging in Forward Commitments, the Fund relies on the other party to
complete the transaction; should the other party fail to do so, the Fund might
lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure. The Fund maintains a
segregated account (which is marked-to-market daily) of cash or liquid
securities covered by the Forward Commitment with the Fund's custodian in an
aggregate amount equal to the amount of its commitment as long as the obligation
to purchase or sell continues. Forward Commitments are not traded on an exchange
and thus may be less liquid than exchange traded contracts.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to
broker-dealers and other financial institutions in an amount up to 10% of the
total assets, provided that such loans are callable at any time by the Fund, and
are at all times secured by cash collateral that is at least equal to the market
value, determined daily, of the loaned securities. During the period of the
loan, the Fund receives the income on both the loaned securities and the
collateral and thereby increases its yield after payment of lending fees.
Lending portfolio securities involves risks of delay in recovery of the loaned
securities or in some cases loss of rights in the collateral should the borrower
fail financially. Accordingly, loans of portfolio securities will only be made
to borrowers considered by the Adviser to be creditworthy.
INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars. The Fund expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may also enter into
these transactions to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund does not intend to use
these transactions as speculative investments and will not enter into interest
rate swaps or sell interest rate caps or floors where it does not own or have
the right to acquire the underlying securities or other instruments providing
the income stream the Fund may be obligated to pay. Interest rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
17
<PAGE> 20
fixed-rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor. An interest rate collar combines the elements of purchasing a cap and
selling a floor. The collar protects against an interest rate rise above the
maximum amount but foregoes the benefit of an interest rate decline below the
minimum amount. Interest rate swaps, caps, floors and collars will be treated as
illiquid securities and will, therefore, be subject to the Fund's investment
restriction limiting investment in illiquid securities. See the Statement of
Additional Information for further discussion on such interest rate
transactions.
The net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a daily
basis and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Fund's custodian. If the Fund enters into an interest rate swap
on other than a net basis, the Fund would maintain a segregated account in the
full amount accrued on a daily basis of the Fund's obligations with respect to
the swap.
PORTFOLIO TURNOVER. The Fund generally experiences a high rate of portfolio
turnover, which may vary from year to year. The rate of portfolio turnover is
not a limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, futures contracts and
related options. A 100% turnover rate would occur, for example, if all the
securities held by the Fund were replaced in a period of one year. Higher
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs, which are borne directly by the Fund. A high portfolio
turnover rate may also result in the realization of substantial net short-term
capital gains. See "Tax Status."
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies of the
Fund permit the Fund to invest in or write options, futures contracts and
related options. The purchase and sale of options and futures contracts involve
risks different from those involved with direct investments in underlying
securities. While utilization of options, futures contracts and similar
instruments may be advantageous to the Fund, if the Adviser is not successful in
employing such instruments in managing the Fund's investments, the Fund's
performance will be worse than if the Fund did not make such investments. In
addition, the Fund would pay commissions and other costs in connection with such
investments, which may increase the Fund's expenses and reduce its return.
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial
18
<PAGE> 21
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 to the Counterparty to sell the option back to
the Fund at a formula price within seven days. The staff of the SEC currently
takes the position that, in general, OTC Options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities covering
OTC Options sold by the Fund, are illiquid securities subject to the Fund's
limitation on illiquid securities described below. The Fund may not purchase or
sell futures contracts or related options for which the aggregate initial margin
and premiums exceed 5% of the fair market value of the Fund's assets.
In order to prevent leverage in connection with the purchase of futures
contracts thereon 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.
The Fund may not invest more than 10% of its net assets in illiquid securities
and repurchase agreements which have a maturity of longer than seven days. A
more complete discussion of the potential risks involved in transactions in
options, futures contracts and related options is contained in the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund. U.S. Government securities in which the Fund invests are traded in the
over-the-counter market. Such securities are generally traded on a net basis
with dealers acting as principal for their own accounts without a stated
commission, although the prices of the securities usually include a profit to
the dealers. It is the policy of the Fund to seek to obtain the best net results
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities, the firm's risk in positioning the
securities involved, and the provision of supplemental investment research by
the firm. While the Fund seeks reasonably competitive dealer spreads, the Fund
will not necessarily be paying the lowest spread available. Brokerage
commissions are paid on transactions in listed options, futures contracts and
options thereon. The Adviser may place portfolio transactions, to the extent
permitted by law, with brokers which are 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 any
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 service 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.
19
<PAGE> 22
INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental investment
restrictions which, like the Fund's 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")). These restrictions provide, among other things, that the Fund may not:
1. Invest more than 5% of its assets in the securities of any one issuer
(except the U.S. Government, its agencies and instrumentalities) or
purchase more than 10% of the outstanding voting securities of any one
issuer, except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from time
to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
2. Borrow in excess of 5% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the market or
other fair value of its total assets. Any such borrowings shall be from
banks and shall be undertaken only as a temporary measure for extraordinary
or emergency purposes. Margin deposits or payments in connection with the
writing of covered call or secured put options, or in connection with the
purchase or sale of futures contracts and related options, are not deemed
to be a pledge or other encumbrance.
3. Purchase a restricted security or a security for which market quotations
are not readily available if as a result of such purchase more than 5% of
the Fund's assets would be invested in such securities. Restricted
securities are securities which must be registered under the Securities Act
of 1933 before they may be offered or sold to the public. Excluded from
this limitation are securities purchased by the Fund 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.
4. Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (a) write covered or fully collateralized call options, write
secured put options, and enter into closing or offsetting purchase
transactions with respect to such options, (b) purchase and sell options to
the extent that the premiums paid for all such options owned at any time do
not exceed 10% of its total assets and (c) engage in transactions in
interest rate futures contracts and related options provided that such
transactions are entered into for bona fide hedging purposes (or that the
underlying commodity value of the Fund's long positions do not exceed the
sum of certain identified liquid investments as specified in CFTC
regulations), provided further that the aggregate initial margin and
premiums do not exceed 5% of the fair market value of the Fund's total
assets,
20
<PAGE> 23
and provided further that the Fund may not purchase futures contracts or
related options if more than 30% of the Fund's total assets would be so
invested.
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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 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
21
<PAGE> 24
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 $1 billion.................................. 0.540%
Next $1 billion................................... 0.515%
Next $1 billion................................... 0.490%
Next $1 billion................................... 0.440%
Next $1 billion................................... 0.390%
Next $1 billion................................... 0.340%
Next $1 billion................................... 0.290%
Over $7 billion................................... 0.240%
</TABLE>
Under the Advisory Agreement, the Fund also reimburses the Adviser for the
costs 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.
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.
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. Mr. John R. Reynoldson has been primarily responsible
for the day-to-day management of the Fund's investment portfolio since June
1988. Mr. Reynoldson has been Senior Investment Vice President of the Adviser
since July 1991 and Senior Vice President of Advisory Corp. since June 1995. He
was previously an investment vice president with the Adviser.
22
<PAGE> 25
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a CDSC of 1.00% may be imposed on redemptions made within one year of the
purchase. Class A shares are subject to an ongoing service fee at an annual rate
of up to 0.25% of the Fund's aggregate average daily net assets attributable to
the Class A shares. Certain purchases of Class A shares qualify for reduced
initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Purchase of
Shares -- Class B Shares."
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
23
<PAGE> 26
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
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher aggregate fees and CDSC on Class B 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 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
ordinarily would be more beneficial for such an investor to purchase Class A
shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as
24
<PAGE> 27
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 or Class B shares, rather than Class C
shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges or have a longer-term investment horizon.
In addition, the check writing privilege is only available for Class A shares
(see "Shareholder Services -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end 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 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. 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."
25
<PAGE> 28
- ------------------------------------------------------------------------------
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 term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares also may be purchased by completing the application accompanying
this Prospectus and forwarding the application through the authorized dealer to
the shareholder service agent, ACCESS Investor Services, Inc. ("ACCESS"), a
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or 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.
U.S. Government securities and related forward commitments are valued at the
last reported bid price. Listed options are valued at the last reported sale
price on the exchange on which such option is traded, or, if no sales are
reported, at the mean between the last reported bid and asked prices. Options
and forward commitments for which market quotations are not readily available
are valued at a fair value by the Adviser based on procedures approved by the
Trustees of the Fund.
Short-term investments with a maturity of 60 days or less when purchased are
valued at cost plus interest earned (amortized cost), which approximates market
value.
26
<PAGE> 29
Short-term investments with a maturity of more than 60 days when purchased are
valued based on market quotations until the remaining days to maturity become
less than 61 days. See the notes to financial statements 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 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 a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary 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 sales generated by the broker
dealer or financial intermediaries at the
27
<PAGE> 30
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 brokers,
dealers or financial intermediaries 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 a specified period of
time. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. All of the foregoing payments are made by
the Distributor out of its own assets. Such fees paid for such services and
activities with respect to the Fund will not exceed in the aggregate 1.25% of
the average total daily net assets of the Fund on an annual basis. These
programs will not change the price an investor will pay for shares or the amount
that 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.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
AS % OF TO DEALERS
SIZE OF AS % OF NET AMOUNT (AS % OF
INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Less than $100,000.......................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........... 2.00% 2.04% 1.75%
$1,000,000 or more*......................... * * *
- -------------------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to authorized dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
28
<PAGE> 31
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are reallowed all or substantially all of the sales charges may be
deemed to be underwriters for purposes of the Securities Act of 1933, as
amended.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited from providing certain underwriting or distribution services. If
banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of banks and other
financial institutions may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be required to
register as dealers pursuant to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
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
29
<PAGE> 32
Fund alone, 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 sales charge
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 purchased 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. Additional information is contained in the application form
accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.
Unit Investment Trust Reinvestment Programs. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
shares of the Fund, at net asset value, and with no minimum initial or
subsequent investment requirement, and with a lower sales charge 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
30
<PAGE> 33
such participation in the qualifying program was initiated 0.50% of the offering
price as a dealer concession or agency commission. Persons desiring more
information with respect to this program, including the applicable terms and
conditions thereof, should contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired trustees or directors of funds advised by the Adviser
or 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, when permitted, registered
representatives of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21
years of age when purchasing for any accounts they beneficially own, or,
in the case of any such financial institution, when purchasing for
retirement plans for such institution's employees, provided that such
purchases are otherwise permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers
through which purchases are made of an amount up to 0.50% of the amount
invested over a 12 month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans
which invest in multiple fund families through broker-dealer retirement
plan alliance
31
<PAGE> 34
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 programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have
received proposals from the Distributor prior to February 1, 1997 based on
net asset value purchase privileges previously in effect will be qualified
to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen American Capital Trust Company 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 authoriza-
32
<PAGE> 35
tion, 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.
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.
33
<PAGE> 36
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 purchases of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- --------------------------------------------------------------------------------
<S> <C>
First......................................... 4.00%
Second........................................ 4.00%
Third......................................... 3.00%
Fourth........................................ 2.50%
Fifth......................................... 1.50%
Sixth and after............................... None
</TABLE>
- ------------------------------------------------------------------------------
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC, second of shares held for over five years and
third of shares held longest during the five year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives in the form of
cash or other compensation to authorized dealers that sell Class B shares of the
Fund.
34
<PAGE> 37
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
charge is assessed on an amount equal to the lesser of the then current market
value or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price. In
addition, no charge is assessed on shares derived from reinvestment of dividends
or capital gains distributions. It is presently the policy of the Distributor
not to accept any order 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
or shares acquired pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of up to 1.00% of the purchase amount will
generally be 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 generally
annually commencing in the second year after purchase. Additionally, the
Distributor may, from time to time, pay additional promotional incentives, in
the form of cash or other compensation, to authorized dealers that sell Class C
shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemptions of Class B 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; (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 also is waived on redemptions of Class C shares as it relates
to the reinvestment of redemption proceeds in shares of the same class of the
Fund within 180 days after redemption. See the Statement of Additional
Information for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services.
35
<PAGE> 38
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which the investor's shares of the Fund are held by ACCESS. Except as
described in this Prospectus, after each share transaction in an account, the
shareholder receives a statement showing the activity in the account. Each
shareholder who has an account in any of the Participating Funds will receive
statements quarterly from ACCESS showing any reinvestments of dividends and
capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale 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 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 (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 and pension and profit sharing plans; 401(k) plans;
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit
36
<PAGE> 39
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 custodian under
the IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as full plan
administration for profit sharing, pension and 401(k) plans are available from
the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once ACCESS has received the
application and the voided check or deposit slip, such shareholder's designated
bank account, following any redemption, will be credited with the proceeds of
such redemption. Once enrolled in the ACH plan, a shareholder may terminate
participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 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 any Participating Fund based on the next computed net asset values of
each fund after requesting the exchange without any sales charge, subject to
certain limitations. Shares of the Fund may be exchanged for shares of any
Participating Fund only if shares of that Participating Fund are available for
sale; however, during periods of suspension of sales, shares of a Participating
Fund may be available for sale only to existing shareholders of 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
share-
37
<PAGE> 40
holder's name for less than 30 days may be exchanged only 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)
341-2911. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. If the exchanging
shareholder does not have an account in the fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gain 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.
38
<PAGE> 41
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.
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 realized by the shareholder upon redemption of shares
is a taxable event. The Fund reserves the right to amend or terminate the
systematic withdrawal program on 30 days' notice to its shareholders.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company (the "Bank") will be sent to the Class A shareholder. These checks may
be made payable by the Class A shareholder to the order of any person in any
amount of $100 or more.
When a check is presented to the Bank for payment, full and fractional Class A
shares required to cover the amount of the check are redeemed from the
shareholder's Class A account by ACCESS at the next determined net asset value.
Check writing redemptions represent the sale of Class A shares. Any gain or loss
realized on the sale of shares is a taxable event. See "Redemption of Shares."
39
<PAGE> 42
Checks will not be honored for redemption of Class A shares held less than
fifteen calendar days, unless such Class A shares have been paid for by bank
wire. Any Class A shares for which there are outstanding certificates may not be
redeemed by check. If the amount of the check is greater than the proceeds of
all uncertificated shares held in the shareholder's Class A account, the check
will be returned and the shareholder may be subject to additional charges. A
Class A shareholder may not liquidate the entire account by means of a check.
The check writing privilege may be terminated or suspended at any time by the
Fund or the Bank. Retirement Plans and accounts that are subject to backup
withholding are not eligible for the privilege. A "stop payment" system is not
available on these checks. See the Statement of Additional Information for
further information regarding the establishment of the privilege.
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.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
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
expenses. A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
40
<PAGE> 43
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 that the purchase check has cleared, which may take up to 15
days. A taxable gain or loss will be recognized by the shareholder upon
redemption of shares.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth, the Fund permits redemption of shares by telephone and for redemption
proceeds to be sent to the address of record for the account. To establish such
privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 341-2911. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures
41
<PAGE> 44
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 the following
types of non-retirement accounts: individual accounts, joint accounts and
accounts of minors with custodians acting on their behalf. 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. 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.
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 impair-
42
<PAGE> 45
ment 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 the initial determination of
disability. This waiver of the CDSC on Class B shares and Class C shares applies
to a total or partial redemption, but only to redemptions of shares held at the
time of the death or the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A shareholder or Class B shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A shares of the Fund. A Class C shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of the Fund with credit given for any CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen American Capital Trust Company for
repayment of principal (and interest) on their borrowings on such plans.
- ------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers or financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year of
the average daily net assets attributable to the Class A shares of the Fund
pursuant
43
<PAGE> 46
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.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C shares up to 0.75% of the Fund's average daily
net assets attributable to Class C shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of shares, any unreimbursed expenses will be carried forward and paid
by the Fund (up to the amount of the actual expenses incurred) in future years
so long as such Distribution Plan is in effect. Except as mandated by applicable
law, the Fund does not impose any
44
<PAGE> 47
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 $25,285,199 and $1,576,046 of unreimbursed distribution-related expenses
with respect to Class B shares and Class C shares, respectively, representing
12.70% and 9.63% of the Fund's net assets attributable to Class B shares and
Class C shares, respectively. If the Distribution Plan was terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
CDSCs.
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of shares. Various federal and state laws prohibit national
banks and some state-chartered commercial banks from underwriting or dealing in
the Fund's shares. In addition, state securities laws on this issue may differ
from the interpretations of federal law, and banks and financial institutions
may be required to register as dealers pursuant to state law. In the unlikely
event that a court were to find that these laws prevent such banks from
providing such services described above, the Fund would seek alternate providers
and expects that shareholders would not experience any disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
Dividends from estimated net investment income are declared daily and paid
monthly. Any taxable net realized short-term or long-term capital gains will be
distributed to shareholders at least annually.
The per share dividends on Class B shares and Class C shares will be lower
than the per share dividends on Class A shares as a result of the higher
distribution fees and transfer agency costs applicable to such classes of
shares. Since the capital loss carry forward plus net unrealized appreciation of
securities totalled about $2.74 per share at December 31, 1997, no capital gain
distributions are presently anticipated.
Unless the shareholder instructs otherwise, dividends and capital gains
distributions are automatically applied to purchase additional shares of the
Fund at net asset value. See "Shareholder Services -- Reinvestment Plan."
In computing interest income, the Fund does not amortize premiums paid on the
purchase of debt securities. Thus in the case of U.S. Government securities
purchased
45
<PAGE> 48
at a premium, interest income is greater than it would be if the premiums were
amortized.
Dividends and distributions paid by the Fund have the effect of reducing the
net asset value per share on the record date by the amount of the dividend or
distribution. Therefore, a dividend or distribution paid shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed below.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
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.
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
46
<PAGE> 49
would be required to distribute such earnings and profits to shareholders (less
any interest charge). In addition, if the Fund failed to qualify as a regulated
investment company for its first taxable year or, if immediately after
qualifying as a regulated investment company for any taxable year, it failed to
qualify for a period greater than one taxable year, the Fund would be required
to recognize any net built-in gains (the excess of aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.
Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.
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.
47
<PAGE> 50
Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Fund distributions
generally will not qualify for the dividends received deduction for
corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
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 a 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 Taxpayer Relief Act of
1997 (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,
48
<PAGE> 51
(ii) 28% for capital assets held for more than one year but not more than 18
months and (iii) 20% for capital assets held for more than 18 months. The
maximum net capital gains tax rate for corporations remains at 35%. The tax
rates for capital gains described above will apply to distributions of capital
gain dividends by the Fund (if, as expected, the Fund designates capital gain
dividends as 28% rate gain distributions or 20% rate gain distributions, in
accordance 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 distributions 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 advisers 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 holding, purchasing,
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, 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 4.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable CDSC has been paid.
The Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Since Class A shares of the Fund
were offered at a maximum sales charge of 6.75% prior to June 12, 1989, actual
Fund total return for shares purchased prior to such date would have been less
than that computed on the basis of the current maximum sales charge. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate
49
<PAGE> 52
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Yield and total return are calculated separately for Class A shares, Class B
shares and Class C shares of the fund. Class A total return figures include the
maximum sales charge of 4.75%; Class B shares and Class C shares 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
50
<PAGE> 53
of such investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average Index, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indicies 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.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Fund's Annual Report and Semi-Annual Report 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 incorporated in the State of Maryland on March 5, 1984. The Fund
was reorganized as a business trust under the laws of Delaware as of August 5,
1995 and adopted its current name at that time.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
The Fund currently offers three classes of shares, designated Class A shares,
Class B shares and
51
<PAGE> 54
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 shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed information concerning the Fund is set forth in the
Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The fiscal year end of the Fund is 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.
52
<PAGE> 55
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
GOVERNMENT SECURITIES 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
Government Securities 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
Government Securities Fund
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 E. Randolph Drive
Chicago, IL 60601
<PAGE> 56
------------------------------------------------------------------------------
GOVERNMENT
SECURITIES 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> 57
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
Van Kampen American Capital Government Securities 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, IL 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-2
Options, Futures Contracts and Related Options.............. B-8
Investment Restrictions..................................... B-12
Trustees and Officers....................................... B-15
Legal Counsel............................................... B-24
Investment Advisory Agreement............................... B-24
Distributor................................................. B-25
Distribution and Service Plans.............................. B-25
Transfer Agent.............................................. B-26
Portfolio Turnover.......................................... B-26
Portfolio Transactions and Brokerage........................ B-26
Determination of Net Asset Value............................ B-28
Purchase and Redemption of Shares........................... B-28
Exchange Privilege.......................................... B-31
Check Writing Privilege..................................... B-32
Tax Status of the Fund...................................... B-32
Fund Performance............................................ B-32
Other Information........................................... B-33
Report of Independent Accountants........................... B-34
Financial Statements........................................ B-35
Notes to Financial Statements............................... B-42
</TABLE>
This Statement of Additional Information is dated April 30, 1998.
B-1
<PAGE> 58
GENERAL INFORMATION
The Fund was originally incorporated as American Capital Government
Securities Fund, Inc. as a Maryland corporation on March 5, 1984. As of August
5, 1995, the Fund was reorganized as a series of Van Kampen American Capital
Government Securities 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.
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
NAME AND OF OWNERSHIP AT CLASS PERCENTAGE
ADDRESS OF HOLDER* APRIL 3, 1998 OF SHARES OWNERSHIP
------------------ --------------- --------- ----------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith Inc..................... 10,241,843 A 5.51%
For the Sole benefit of its customers 94,587 C 6.09%
Attn: Fund Administration
4800 Dear Lake Dr. East 3rd Fl
Jacksonville, FL 32246-6484
Van Kampen American Capital Trust Company................... 39,952,725 A 21.51%
P.O. Box 1411 3,635,591 B 20.35%
Houston, TX 77251-1411 193,400 C 12.44%
</TABLE>
- ---------------
* All holders were of record.
Van Kampen American Capital Trust Company acts as custodian for certain
employee benefit plans and independent retirement accounts.
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
One type of mortgage-related securities in which the Fund invests are those
which are issued or guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. One such type
of mortgage-related security is a Government National Mortgage Association
("GNMA") Certificate. GNMA Certificates are backed as to principal and interest
by the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments of FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Fund may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is backed
by FHLMC as to payment of principal and interest but, like a FNMA security, it
is not backed by the full faith and credit of the U.S. Government.
B-2
<PAGE> 59
The Fund seeks to obtain a high current return from the following sources:
- interest paid on the Fund's portfolio securities;
- net profits from closing transactions; and
- net gains from the sale of portfolio securities.
The Fund's current operating policy is to generally maintain a portfolio
duration of three to eight years. The Fund has no policy limiting the maturities
of individual debt securities in which it may invest. Duration is a measure of
the expected life of a debt security on a current value basis expressed in years
that incorporates a debt security's yield, coupon interest payments, final
maturity and call features into one measure.
Traditionally, a debt security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "price volatility" of the security).
However, "term to maturity" measures only the time until a debt security
provides its final payment taking no account of the pattern of the security's
payments of interest or principal prior to maturity. Duration measures the
length of the time interval between the present and the time when the interest
and principal payments of a debt security are scheduled to be received (or in
the case of a callable bond, expected to be received), weighing them by the
present value of the cash to be received at each future point in time. For any
debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity, and for zero coupon issues,
duration and term to maturity are equal. In general, the lower the coupon rate
of interest or the longer the maturity, or the lower of the yield-to-maturity of
a debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration.
Duration allows an investment manager to make certain predictions regarding
how the value of a portfolio will generally respond to changes in interest
rates. For example, a portfolio consisting entirely of treasury notes with a
remaining maturity of five years would have a duration of 4.5 years. A 1.00%
change in the interest rate earned on such securities would cause a change of
approximately 4.5% in the net asset value of the portfolio. A portfolio
consisting entirely of treasury notes with a remaining maturity of ten years
would have a duration of about 7.5 years and a 1.00% change in the interest rate
earned on such securities would cause a change of between 7.00% and 8.00% in the
net asset value of the portfolio. This example is intended for demonstration
purposes only, however, and is not intended to approximate how the Fund's
portfolio will respond to changes in interest rates. The Fund's investment
portfolio may include securities with differing maturities and quality levels,
and interest rates on those instruments may not all change by the same amount at
the same time as rates rise or fall generally in the marketplace. Also, the
treasury securities described in the example cannot be retired prior to
maturity, while some of the securities in the Fund's portfolio can. These
factors among others can cause the Fund's investment portfolio to respond
somewhat differently to changes in interest rates than shown in the example.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure. The duration of the Fund's
portfolio is likely to vary from time to time.
The Fund is not designed for investors seeking long-term capital
appreciation. Moreover, varying economic and market conditions may affect the
value of and yields on debt securities and opportunities for gains from an
option writing program. Accordingly, there is no assurance that the Fund's
investment objective will be achieved.
B-3
<PAGE> 60
GNMA CERTIFICATES
Government National Mortgage Association. The Government National Mortgage
Association is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.
Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Fund purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owned on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.
GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Fund will be
reinvested in additional GNMA Certificates or in other permissible investments.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal of and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers
Home Administration or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the United States. GNMA
is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities (the type of mortgages backing the vast majority of GNMA
Certificates) is approximately twelve years. For this reason, it is customary
for pricing purposes to consider GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than at
par.
2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1.00% more
than high grade corporate bonds and 1/2 of 1.00% more than U.S. Government and
U.S. Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield
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earned on any issue of GNMA Certificates may differ significantly from the yield
estimated on the assumption of a twelve-year life.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FNMA SECURITIES
The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all principal and interest payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the United States.
FHLMC SECURITIES
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970 to
promote development of a nationwide secondary market in conventional residential
mortgages. The FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal. GMC's also
represent a pro rata interest in a pool of mortgages. However, these instruments
pay interest semiannually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately ten
years. The FHLMC guarantee is not backed by the full faith and credit of the
United States.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations are debt obligations issued generally
by finance subsidiaries or trusts which are secured by mortgage-backed
certificates, including GNMA Certificates, FHLMC Certificates and FNMA
Certificates, together with certain funds and other collateral. Scheduled
distributions on the mortgage-backed certificates pledged to secure the
collateralized mortgage obligations, together with certain funds and other
collateral and reinvestment income thereon at an assumed reinvestment rate, will
be sufficient to make timely payments of interest on the obligations and to
retire the obligations not later than their stated maturity. Since the rate of
payment of principal of any collateralized mortgage obligation will depend on
the rate of payment (including prepayments) of the principal of the mortgage
loans underlying the mortgage-backed certificates, the actual maturity of the
obligation could occur significantly earlier than its stated maturity.
Collateralized mortgage obligations may be subject to redemption under certain
circumstances. The rate of interest borne by collateralized mortgage obligations
may be either fixed or floating. In addition, certain collateralized mortgage
obligations do not bear interest and are sold at a substantial discount (i.e., a
price less than the principal amount). Purchases of collateralized mortgage
obligations at a substantial discount involves a risk that the anticipated yield
on the purchase may not be realized if the underlying mortgage loans prepay at a
slower than anticipated rate, since the yield depends significantly on the rate
of prepayment of the underlying mortgages. Conversely, purchases of
collateralized mortgage obligations at a premium involve additional risk of loss
of principal in the event of unanticipated prepayments of the mortgage loans
underlying the mortgage-backed certificates since the premium may not have been
fully amortized at the time the obligation is repaid. The market value of
collateralized mortgage obligations purchased at a substantial premium of
discount is extremely volatile and the effects of prepayments on the underlying
mortgage loans may increase such volatility.
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Although payment of the principal of and interest on the mortgage-backed
certificates pledged to secure collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of their issuers and are not insured or guaranteed
by GNMA, FHLMC, FNMA or any other governmental agency or instrumentality, or by
any other person or entity. The issuers of collateralized mortgage obligations
typically have no significant assets other than those pledged as collateral for
the obligations.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to broker-dealers and other financial institutions provided
that such loans are callable at any time by the Fund, and are at all times
secured by cash collateral that is at least equal to the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the interest on the loaned securities, while at
the same time earning interest on the collateral which will be invested in
short-term obligations. The Fund pays lending fees and custodial fees in
connection with loans of its securities. There is no assurance as to the extent
to which securities loans can be effected.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the consideration which can be
earned from such loans is believed to justify the attendant risks. The Fund
would not lend any portfolio securities to brokers affiliated with the Adviser.
On termination of the loan, the borrower is required to return the securities to
the Fund; any gain or loss in the market price during the loan would inure to
the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, whole or in part
as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks or broker-dealers
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 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. See "Investment Practices -- Repurchase
Agreements" in the Prospectus for further information.
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FORWARD COMMITMENTS
Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked-to-market daily) of cash or liquid securities (which
may have maturities which are longer than the term of the Forward Commitment)
with the Fund's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase continues. Since the market
value of both the securities subject to the Forward Commitment and the
securities held in the segregated account may fluctuate, the use of Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.
A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities subject to the Forward Commitment. A Forward
Commitment sale is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in value of a security which the
Fund owns or has the right to acquire. In either circumstance, the Fund
maintains in a segregated account (which is marked-to-market daily) either the
security covered by the Forward Commitment or cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's Custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to sell continues. By entering into
a Forward Commitment sale transaction, the Fund foregoes or reduces the
potential for both gain and loss in the security which is being hedged by the
Forward Commitment sale.
INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's Custodian. If the Fund enters
into an interest rate swap on other than a net basis, the Fund would maintain a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. Interest rate transactions do not
constitute senior securities under the 1940 Act when the Fund segregates assets
to cover the obligations under the transactions. The Fund will enter into
interest rate swap, cap or floor transactions only with counterparties approved
by the Trustees. The Adviser will monitor the creditworthiness of counterparties
to its interest rate swap, cap, floor and collar transactions on an ongoing
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction. To the extent the Fund sells (i.e., writes) caps, floors and
collars, it will maintain in a segregated account cash or liquid securities
having an aggregate net asset value at least equal to the full amount, accrued
on a daily basis, of the Fund's net obligations with respect to the caps, floors
or collars. The use of interest rate swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Adviser is incorrect in
its forecasts of the market values, interest rates and other applicable factors,
the investment performance of the Fund would diminish compared with what it
would have been if these investment techniques were not used. The use of
interest rate swaps, caps, collars and floors may also have the effect of
shifting the recognition of income between current and future periods.
These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive.
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OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
CALL AND PUT OPTIONS
The Fund will only buy and sell call and put options for bona fide hedging
purposes. Call and put options on various U.S. Treasury notes and U.S. Treasury
bonds are listed and traded on exchanges and are written in over-the-counter
transactions. Call and put options on mortgage-related securities are currently
written or purchased only in over-the-counter transactions.
SELLING CALL AND PUT OPTIONS
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund sells call options
either on a covered basis, or for cross-hedging purposes. A call option is
covered if the Fund owns or has the right to acquire the underlying securities
subject to the call option at all times during the option period. Thus, the Fund
may sell options on forward commitments or on mortgage-related or other U.S.
Government securities. An option is for cross-hedging purposes if it is not
covered, but is designed to provide a hedge against a security which the Fund
owns or has the right to acquire. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's Custodian,
cash or liquid securities in an amount not less than the market value of the
underlying security, marked to market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a seller of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option sold. If the Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the option until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.
The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market prices.
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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. 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. The Fund will not purchase call or put options on
securities if as a result, more than ten percent of its net assets would be
invested in premiums on such options.
The Fund may purchase either listed or over-the-counter options.
RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES
Treasury Bonds and Notes. Because trading interest in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of bonds or notes will thus be phased out as new options are
listed on more recent issues, and options representing a full range of
expirations will not ordinarily be available for every issue on which options
are traded.
Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian so that it will be
treated as being covered.
Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Fund as a writer of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its delivery obligation in the event of
exercise may find that the mortgage-related securities it holds no longer have a
sufficient remaining principal balance for this purpose. Should this occur, the
Fund will purchase additional mortgage-related securities from the same pool (if
obtainable) or replacement mortgage-related securities in the cash market in
order to maintain its cover. A mortgage-related security held by the Fund to
cover an option position in any but the nearest expiration month may cease to
represent cover for the option in the event of a decline in the coupon rate at
which new pools are originated under the FHA/VA loan ceiling in effect at any
given time. If this should occur, the Fund will no longer be covered, and the
Fund will either enter into a closing purchase transaction or replace such
mortgage-related security with a mortgage-related security which represents
cover. When the Fund closes its position or replaces such mortgage-related
security, it may realize an unanticipated loss and incur transaction costs.
INTEREST RATE 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."
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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, U.S. Treasury notes, U.S. Treasury bills and GNMA Certificates)
at a specified future time and at a specified price. Interest rate futures
contracts also include cash settlement contracts based upon a specified interest
rate such as the London interbank offering rate for dollar deposits or LIBOR.
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 will be required to deposit with its Custodian in
an account in the brokers' name an amount of cash or liquid securities equal to
not more than 5% of the contract amount. This amount is known as initial margin.
The nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, will be made on a
daily basis as the price of the underlying securities fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.
For example, when the Fund has purchased a futures contract and the price
of the underlying security has risen, that position will have increased in
value, and the Fund will receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the value of the underlying security has declined, the
position would be less valuable, and the Fund would be required to make a
variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security, the sale of futures contracts would
substantially reduce the risk to the Fund of a market decline and, by so doing,
provide an alternative to the liquidation of securities positions in the Fund.
Ordinarily commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of mortgage-related and U.S. Government
securities.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in listed options, futures or related options, the Fund could
experience delays or losses in liquidating open positions purchased or incur a
loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk 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
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dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities underlying the futures
contract due to certain market distortions. First, all participants in the
futures market are subject to margin depository and maintenance requirements.
Rather than meet additional margin depository requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the futures market and the securities underlying the
futures contract. Second, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
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 judged over a very short
time frame.
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.
The Fund will not enter into futures contracts or option 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 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase of
futures contracts by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option
B-11
<PAGE> 68
premiums received by the Fund are required to be included as initial margin
deposits. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as it could sell, a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
In addition to the risks described above which apply to all options
transactions, there are several special risks relating to options on futures.
The Adviser will not purchase options on futures on any exchange unless in the
Adviser's opinion, a liquid secondary exchange market for such options exists.
Compared to the use of futures, the purchase of options on futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances, such as when there is no movement in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS RELATING OF OPTIONS AND FUTURES TRANSACTIONS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges, or are held or written
on one or more accounts, or through one or more brokers). Option positions of
all investment companies advised by the Adviser are combined for purposes of
these limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described in the Prospectus,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which 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. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and 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.
B-12
<PAGE> 69
2. Make any investment in real estate, commodities or commodities
contracts, except that the Fund may purchase or sell securities which
are secured by real estate, and engage in transactions in interest rate
futures contracts and related options as described under Investment
Restriction Number 4 in the Prospectus.
3. Make any investment which would cause more than 25% of the market or
other fair value of its total assets to be invested in the securities
of issuers, all of which conduct their principal business activities in
the same industry. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
4. Make loans of money or securities, except that the Fund may invest (a)
by investment in repurchase agreements in accordance with applicable
requirements set forth in the Fund's Prospectus or (b) by lending its
portfolio securities in amounts not to exceed 10% of the Fund's total
assets, provided that such loans are secured by cash collateral that is
at least equal to the market value. The Fund will not invest in
repurchase agreements maturing in more than seven days (unless subject
to a demand feature) if any such investment, together with any illiquid
securities (including securities which are subject to legal or
contractual restrictions on resale and which are not readily
marketable) held by the Fund, exceeds ten percent of the market or
other fair value of its total net assets. See "Investment
Practices -- Repurchase Agreements."
5. Make short sales of securities, unless at the time of the sale the Fund
owns an equal amount of such securities. Notwithstanding the foregoing,
the Fund may make short sales by entering into forward commitments for
hedging or cross-hedging purposes and engage in transactions in
options, futures contracts and related options.
6. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Fund of initial
or maintenance margin in connection with options, interest rate futures
contracts or related options transactions is not considered the
purchase of a security on margin.
7. Invest in warrants or rights except where acquired in units or attached
to other securities. This restriction does not apply to options,
futures contracts or related options.
8. Invest in securities of any company if any officer or director of the
Fund or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and directors own in the
aggregate more than 5% of the outstanding securities of such issuer.
9. Invest in interests in oil, gas, or other mineral exploration or
development programs.
10. Invest more than 5% of its assets in the securities of any one issuer
(except the U.S. Government, its agencies and instrumentalities) or
purchase more than 10% of the outstanding voting securities of any one
issuer except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from provisions of the 1940 Act.
11. Borrow in excess of 5% of the market or other fair value of its total
assets; or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Margin deposits or payments in
connection with the writing of covered call or secured put options, or
in connection with the purchase or sale of futures contracts and
related options, are not deemed to be a pledge or other encumbrance.
12. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase
more than 5% of the Fund's assets would be invested in such securities.
Restricted securities are securities which must be registered under the
Securities Act of 1933 before they may be offered or sold to the
public. Excluded from this limitation are securities purchased by the
Fund of other investment companies to the extent permitted by (i) the
1940 Act, as amended
B-13
<PAGE> 70
from time to time, (ii) the rules and regulations promulgated by the
SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
13. Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
offsetting purchase transactions with respect to such options, (b)
purchase and sell options to the extent that the premiums paid for all
such options owned at any time do not exceed 10% of its total assets
and (c) engage in transactions in interest rate futures contracts and
related options provided that such transactions are entered into for
bona fide hedging purposes (or that the underlying commodity value of
the Fund's long positions do not exceed the sum of certain identified
liquid investments as specified in CFTC regulations), provided further
that the aggregate initial margin and premiums do not exceed 5% of the
fair market value of the Fund's total assets, and provided further that
the Fund may not purchase futures contracts or related options if more
than 30% of the Fund's total assets would be so invested.
14. 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, forward commitments 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."
15. Underwrite securities of other companies, except insofar as the Fund
might be deemed to be an underwriter for purposes of the Securities Act
of 1933 in the resale of any securities owned by the Fund.
B-14
<PAGE> 71
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-15
<PAGE> 72
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
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 others 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 company. Director of
Downers Grove, IL 60515 Illinois Tool Works, Inc., a manufacturing company; the
Date of Birth: 07/08/44 Urban 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-16
<PAGE> 73
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-17
<PAGE> 74
<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-18
<PAGE> 75
<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-19
<PAGE> 76
<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 VKAC, the Advisers, the
Distributor, ACCESS or Morgan
B-20
<PAGE> 77
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-21
<PAGE> 78
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.
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 $5,000 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 5,000 3,141 60,000 111,197
R. Craig Kennedy* 1995 5,000 2,229 60,000 111,197
Jack E. Nelson* 1995 5,000 15,820 60,000 104,322
Jerome L. Robinson 1995 5,000 32,020 15,750 107,947
Phillip B. Rooney* 1997 3,750 0 60,000 74,697
Dr. Fernando Sisto* 1973 5,000 60,208 60,000 111,197
Wayne W. Whalen* 1995 5,000 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 not currently 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, $5,000; Ms. Heagy, $5,000; Mr.
Kennedy, $2,500; Mr. Nelson, $5,000; Mr. Robinson, $5,000; Mr. Rooney,
$2,500; Dr. Sisto, $2,500; and Mr. Whalen, $5,000. 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
B-22
<PAGE> 79
former trustees, from the Fund as of December 31, 1997 is as follows: Mr.
Branagan, $7,104; Dr. Caruso, $27,245; Mr. Gaughan, $1,577; Ms. Heagy,
$12,065; Mr. Kennedy, $7,614; Mr. Lipshie, $3,818; Mr. Miller, $7,344; Mr.
Nelson, $13,886; Mr. Rees, $90,970; Mr. Robinson, $13,989; Mr. Rooney,
$2,521; Dr. Sisto, $63,905; Mr. Vernon, $13,076; and Mr. Whalen, $13,868.
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' 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
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 outstanding shares of the Fund.
B-23
<PAGE> 80
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, including the placing of orders
for the purchase and sale of portfolio securities. The Adviser obtains and
evaluates economic, statistical, and financial information to formulate and
implement the Fund's investment programs.
The Adviser also furnishes the services of the Fund's President and such
other executive and clerical personnel as are necessary to prepare the various
reports and statements and conduct the Fund's day-to-day operations. The Fund,
however, bears the cost of its accounting services, which include maintaining
its financial books and records and calculating its net asset value. The costs
of such accounting services include the salaries and overhead expenses of the
Fund's Treasurer and the personnel operating under his direction. Charges are
allocated among the investment companies advised or subadvised by the Adviser.
The services provided by the Adviser are at cost. The Fund also pays shareholder
service agency fees, distribution fees, service fees, custodian fees, legal and
auditing fees, the costs of reports to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser. The Advisory
Agreement also provides that the Adviser shall not be liable to the Fund for any
actions or omissions if it acted without willful misfeasance, bad faith,
negligence or reckless disregard of its obligations.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at the annual
rate of: 0.540% on the first $1 billion of average daily net assets; 0.515% on
the next $1 billion of average daily net assets; 0.490% on the next $1 billion
of average daily net assets; 0.440% on the next $1 billion of average daily net
assets; 0.390% on the next $1 billion of average daily net assets; 0.340% on the
next $1 billion of average daily net assets; 0.290% on the next $1 billion of
average daily net assets; and 0.240% on the average daily net assets over $7
billion.
The Fund's average net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser 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 Fund's benefit and to advise the Trustees of the Fund of any other
commissions, fees, brokerage or similar payments which may be possible for the
Adviser or any other direct or indirect majority-owned subsidiary of VK/AC
Holding, Inc., to receive in connection with the Fund's portfolio transactions
or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where the Fund's shares are
qualified for sale, the Adviser's monthly compensation will be reduced by the
amount of such excess and that, if the amount of such excess exceeds the
Adviser's monthly compensation, the Adviser will pay the Fund an amount
sufficient to make up the deficiency, subject to readjustment during the Fund's
fiscal 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-24
<PAGE> 81
(b) by the affirmative vote of a majority of the Trustees who are not parties to
the agreement or interested persons of any such party by votes cast in person at
a meeting called for such purpose. The Advisory Agreement provides that it shall
terminate automatically if assigned and that it may be terminated without
penalty by either party on 60 days' written notice.
During the fiscal years ended December 31, 1997, 1996 and 1995, the Adviser
received $11,754,020, $13,463,409 and $14,930,811, respectively, in advisory
fees from the Fund. For such periods, the Fund paid $292,509, $404,459 and
$361,240, respectively, for accounting services. A portion of these amounts was
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.
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 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.......... $1,298,814 $140,600 $127,266
Fiscal Year Ended December 31, 1996.......... $1,028,110 $105,404 $ 0
Fiscal Year Ended December 31, 1997.......... $ 747,490 $ 72,969 $ 0
</TABLE>
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."
B-25
<PAGE> 82
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
The Distributor has entered into agreements with (i) The Prudential
Insurance Company of America ("Prudential") under which the Fund shall be
offered pursuant to the PruArray Programs and (ii) Merrill Lynch ("Merrill")
under which the Fund shall be offered pursuant to the Merrill Program. Trustees
and other fiduciaries of retirement plans seeking to invest in multiple fund
families through broker-dealer retirement plan alliance programs should contact
Prudential or Merrill for further information concerning the PruArray and
Merrill Programs including, but not limited to, minimum size and operational
requirements.
For the fiscal year ending December 31, 1997, the Fund's aggregate expenses
under the Class A Plan were $4,304,561, or 0.25% of the Class A shares' average
net assets. For the fiscal year ended December 31, 1997, the Fund's aggregate
expenses under the Class B Plan were $2,081,250, or 1.00%, of the Class B
shares' average net assets. Such expenses were paid to reimburse the Distributor
for the following payments: $1,611,940 for commissions and transaction fees paid
to financial intermediaries in respect of sales of Class B shares of the Fund
and $469,310 for fees paid to financial intermediaries for servicing Class B
shareholders and administering the Class B Plan. For the fiscal year ended
December 31, 1997, the Fund's aggregate expenses under the Class C Plan were
$184,047 or 1.00% of the Class C shares' average net assets. Such expenses were
paid to reimburse the Distributor for the following payments: $54,217 for the
commissions and transactions fees paid to financial intermediaries in respect of
sales of Class C shares of the Fund and $129,830 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Plan.
TRANSFER AGENT
During the fiscal years ended November 30, 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 $4,988,910, $4,246,528
and $3,027,304, respectively, for these services. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive market benchmarks.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate for prior
years is shown under "Financial Highlights" in the Prospectus. The turnover rate
will fluctuate over time depending upon the Adviser's investment strategy and
the higher volatility of the market for government securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions paid 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
B-26
<PAGE> 83
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 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 as a factor in the
selection of dealers 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 investment advisory agreement, the Fund's
Board of Trustees has 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.
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 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 $0 in brokerage
commissions on transactions totalling $0 to brokers selected primarily on the
basis of research services provided to the Adviser. The
B-27
<PAGE> 84
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.
Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter Discover
& Co. ("Dean Witter") became an affiliate of the Adviser. The 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>
Fiscal year 1995............................................ $ 0 $ 0 $ 0
Fiscal year 1996............................................ $1,490,426 $ 0 $ 0
Fiscal year 1997............................................ $1,180,447 $ 0 $ 0
Fiscal year 1997 Percentages:
Commissions with affiliate to total commissions........... -- 0% 0%
Value of brokerage transactions with affiliate to total
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.
U.S. Government and Agency obligations and related forward commitments are
valued at the last reported bid price. Listed options are valued at the last
reported sale price on the exchange on which such option is traded or if no
sales are reported, at the mean between the last reported bid and asked prices.
Options and forward commitments for which market quotations are not readily
available are valued at a fair value by the Adviser based on procedures approved
by the Trustees of the Fund.
Securities (as well as over-the-counter options) and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Adviser based on procedures approved by the
Trustees of the Fund. Such valuations and procedures are reviewed periodically
by the Trustees.
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
B-28
<PAGE> 85
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
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 totaling 5% of the dollar amount of the Letter of
Intent are held by ACCESS in the name of the shareholder. The effective date of
a Letter of Intent may be back-dated up to 90 days in order that any investments
made during this 90-day period, valued at the investor's cost, can become
subject to the Letter of Intent. The Letter of Intent does not obligate the
investor to purchase the indicated amount. In the event the Letter of Intent
goal is not achieved within the 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 therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to determine fairly the value of its net assets; or (d)
the SEC, by order, so permits.
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 will 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.
B-29
<PAGE> 86
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B shares and Class C shares will be subject to a CDSC. The CDSC -- Class B
and C is waived on redemptions of Class B shares and Class C shares in the
circumstances described below:
(a) Redemption Upon 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 on to the holding period of
the shares acquired in the transfer or rollover for purposes of determining
what, if any, CDSC -- Class B and C is applicable in the event that such
acquired shares are redeemed following the transfer or rollover. The charge also
will be waived on any redemption which results from the return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code, the return of
excess deferral amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan (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.
B-30
<PAGE> 87
(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 at net
asset value, with credit for any CDSC -- Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his or her purchase to the nearest
full share) in Class C shares of the Fund, provided that the reinvestment is
effected within 180 days after such redemption and the shareholder has not
previously exercised this reinvestment privilege with respect to Class C shares
of the Fund. Shares acquired in this manner will be deemed to have the original
cost and purchase date of the redeemed shares for purposes of applying the
CDSC -- Class C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. Van Kampen American Capital and its
subsidiaries, including ACCESS, and the Fund employ procedures considered by
them to be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen American Capital, ACCESS nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital, ACCESS and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
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.
B-31
<PAGE> 88
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form and return both documents to ACCESS before checks will be
issued. All signatures on the authorization card must be guaranteed if any of
the signatures are persons not referenced in the account registration or if more
than 30 days have elapsed since ACCESS established the account on its records.
Moreover, if the shareholder is a corporation, partnership, trust, fiduciary,
executor or administrator, the appropriate documents appointing authorized
signers (corporate resolutions, partnerships or trust agreements) must accompany
the authorization card. The documents must be certified in original form, and
the certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
TAX STATUS OF THE FUND
The Trust and 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 3.98%, (ii) the five year period ended December 31, 1997
was 5.07% and (iii) the ten year period ended December 31, 1997 was 7.81%. 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 4.27%, (ii) the five year period ended December 31, 1997 was 5.08% and
(iii) the six year and one half month period ended December 31, 1997 was 5.50%.
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 7.28% and (ii) the four year nine and a half month period
ended December 31, 1997 was 4.74%. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices.
The Fund's annualized current yield for Class A shares, Class B shares and
Class C shares of the Fund for the 30-day period ending December 31, 1997, was
5.29%, 4.75% and 4.73%, respectively. The yield for any class of shares is not
fixed and will fluctuate in response to prevailing interest rates and the market
value of portfolio securities, and as a function of the type of securities owned
by the Fund, portfolio maturity and the Fund's expenses.
Yield and total return are computed separately for Class A shares, Class B
shares and Class C shares.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Fund.
B-32
<PAGE> 89
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash,
including proceeds from the sale of shares of the Fund and of securities in the
Fund's investment portfolio, are held by State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders,
and annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 200 E. Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Fund, performs an
annual audit of the Fund's financial statements.
B-33
<PAGE> 90
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Van Kampen American Capital Government Securities 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
Government Securities 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, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 29, 1998
B-34
<PAGE> 91
Portfolio of Investments
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government Agency Obligations 54.8%
$ 41,830 Federal Home Loan Mortgage Corp. Gold 30 Year Pools.......... 7.000% 02/01/23 to 09/01/24 $ 42,350
68,699 Federal Home Loan Mortgage Corp. Gold 30 Year Pools.......... 7.500 01/01/22 to 07/01/24 70,464
2,564 Federal Home Loan Mortgage Corp. Gold 30 Year Pools.......... 8.000 07/01/24 to 09/01/24 2,654
40,649 Federal National Mortgage Association 15 Year Dwarf Pools.... 6.000 01/01/09 to 01/01/10 40,116
53,563 Federal National Mortgage Association 15 Year Dwarf Pools.... 6.500 06/01/08 to 06/01/12 53,793
38,163 Federal National Mortgage Association 15 Year Dwarf Pools.... 7.500 03/01/02 to 09/01/12 39,185
93,449 Federal National Mortgage Association Pools.................. 6.500 01/01/26 to 06/01/26 92,281
81,545 Federal National Mortgage Association Pools.................. 7.000 10/01/23 to 05/01/25 82,428
76,742 Federal National Mortgage Association Pools.................. 7.500 03/01/22 to 01/01/25 78,676
328 Federal National Mortgage Association Pools.................. 8.000 09/01/24 to 11/01/24 340
208 Federal National Mortgage Association Pools.................. 11.500 02/01/13 to 03/01/19 234
3,911 Federal National Mortgage Association Pools.................. 12.000 03/01/13 to 01/01/16 4,445
93,863 Government National Mortgage Association Pools............... 6.500 07/15/24 to 08/15/26 92,895
87,631 Government National Mortgage Association Pools............... 7.000 01/15/23 to 03/15/26 88,560
59,815 Government National Mortgage Association Pools............... 7.500 02/15/07 to 11/15/24 61,447
65,302 Government National Mortgage Association Pools............... 8.000 07/15/07 to 10/15/25 68,252
192,545 Government National Mortgage Association Pools............... 8.500 09/15/04 to 02/15/23 204,630
132,864 Government National Mortgage Association Pools............... 9.000 11/15/17 to 12/15/22 144,263
220 Government National Mortgage Association Pools............... 11.000 01/15/10 to 11/15/20 244
5,670 Government National Mortgage Association Pools............... 12.000 06/15/11 to 08/15/15 6,434
2,429 Government National Mortgage Association Pools............... 12.500 04/15/10 to 07/15/18 2,810
----------
Total United States Government Agency Obligations 1,176,501
----------
United States Treasury Obligations 42.1%
100,000 United States Treasury Bonds (a)............................. 8.125 08/15/19 125,172
100,000 United States Treasury Bonds (a)............................. 11.125 08/15/03 125,469
175,000 United States Treasury Notes (a)............................. 7.000 07/15/06 188,918
150,000 United States Treasury Notes (a)............................. 7.500 05/15/02 160,101
285,000 United States Treasury Notes (a)............................. 8.500 02/15/00 to 11/15/00 302,529
----------
Total United States Treasury Obligations.................................................... 902,189
----------
Forward Purchase Commitments 3.7%
79,000 Federal National Mortgage Association, February Forward...... 7.000 TBA 79,790
----------
Total Long-Term Investments 100.6%
(Cost $2,095,793)......................................................................................... 2,158,480
----------
Repurchase Agreement 2.1%
BA Securities ($44,930 par collateralized by U.S. Government obligations in a pooled cash account,
dated 12/31/97, to be sold on 01/02/98 at $44,946)
(Cost $44,930)............................................................................................ 44,930
----------
Total Investments 102.7%
(Cost $2,140,723)......................................................................................... 2,203,410
Liabilities in Excess of Other Assets (2.7%)............................................................... (57,460)
----------
Net Assets 100.0%.......................................................................................... $2,145,950
----------
</TABLE>
(a) Assets segregated as collateral for open forward commitments and open
futures transactions.
TBA--To be announced. Maturity date has not been established. Upon settlement
and delivery of the mortgage pools, maturity dates will be assigned.
B-35
<PAGE> 92
Statement of Assets and Liabilities
December 31, 1997
All amounts, except for Maximum Offering Price information, reported
in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $2,140,723)........................................... $2,203,410
Receivables:
Interest.................................................................... 28,634
Variation Margin on Futures................................................. 2,112
Fund Shares Sold............................................................ 1,106
Other......................................................................... 132
----------
Total Assets................................................................ 2,235,394
----------
Liabilities:
Payables:
Investments Purchased....................................................... 79,790
Fund Shares Repurchased..................................................... 5,311
Distributor and Affiliates.................................................. 1,269
Investment Advisory Fee..................................................... 958
Income Distributions........................................................ 955
Custodian Bank.............................................................. 1
Accrued Expenses.............................................................. 427
Forward Commitments........................................................... 407
Trustees' Deferred Compensation and Retirement Plans.......................... 326
----------
Total Liabilities........................................................... 89,444
----------
Net Assets.................................................................... $2,145,950
==========
Net Assets Consist of:
Capital....................................................................... $2,727,137
Net Unrealized Appreciation................................................... 67,300
Accumulated Undistributed Net Investment Income............................... 276
Accumulated Net Realized Loss................................................. (648,763)
----------
Net Assets.................................................................... $2,145,950
==========
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$1,930,427,086 and 188,164,401 shares of beneficial interest issued
and outstanding)......................................................... $ 10.26
Maximum sales charge (4.75%* of offering price).......................... .51
----------
Maximum offering price to public......................................... $ 10.77
==========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$199,153,006 and 19,408,832 shares of beneficial interest
issued and outstanding).................................................. $ 10.26
==========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$16,370,104 and 1,598,797 shares of beneficial interest issued
and outstanding)......................................................... $ 10.24
==========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
B-36
<PAGE> 93
Statement of Operations
For the Year Ended December 31, 1997
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest....................................................................... $171,732
--------
Expenses:
Investment Advisory Fee........................................................ 11,754
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $5,006, $2,148 and $184, respectively)........................ 7,338
Shareholder Services........................................................... 4,355
Custody........................................................................ 193
Legal.......................................................................... 96
Trustees' Fees and Expenses.................................................... 56
Other.......................................................................... 1,055
--------
Total Expenses.............................................................. 24,847
--------
Net Investment Income....................................................... $146,885
========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments................................................................. $(30,197)
Futures..................................................................... 1,117
Forward Commitments......................................................... 1,201
--------
Net Realized Loss.............................................................. (27,879)
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................................... (4,302)
--------
End of the Period:
Investments............................................................ 62,687
Futures................................................................ 5,020
Forward Commitments.................................................... (407)
--------
67,300
--------
Net Unrealized Appreciation During the Period.................................. 71,602
--------
Net Realized and Unrealized Gain............................................... $ 43,723
========
Net Increase in Net Assets From Operations..................................... $190,608
========
</TABLE>
See Notes to Financial Statements
B-37
<PAGE> 94
Statement of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................. $ 146,885 $ 176,470
Net Realized Loss................................................. (27,879) (36,088)
Net Unrealized Appreciation/Depreciation During the Period........ 71,602 (101,139)
---------- ---------
Change in Net Assets from Operations.............................. 190,608 39,243
---------- ---------
Distributions from Net Investment Income:
Class A Shares................................................ (133,144) (159,011)
Class B Shares................................................ (12,711) (15,893)
Class C Shares................................................ (1,094) (1,480)
---------- ---------
Total Distributions............................................... (146,949) (176,384)
---------- ---------
Net Change in Net Assets from Investment Activities............... 43,659 (137,141)
---------- ---------
From Capital Transactions:
Proceeds from Shares Sold......................................... 132,259 236,825
Net Asset Value of Shares Issued Through Dividend Reinvestment.... 82,010 97,997
Cost of Shares Repurchased........................................ (526,704) (639,804)
---------- ---------
Net Change in Net Assets from Capital Transactions................ (312,435) (304,982)
---------- ---------
Total Decrease in Net Assets...................................... (268,776) (442,123)
Net Assets:
Beginning of the Period........................................... 2,414,726 2,856,849
---------- ---------
End of the Period (Including accumulated undistributed net
investment income of $276 and $1,350, respectively)............. $2,145,950 $2,414,726
========== ==========
</TABLE>
See Notes to Financial Statements
B-38
<PAGE> 95
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................ $ 10.045 $ 10.55 $ 9.67 $ 10.80 $ 10.75
-------- ------- ------- -------- -------
Net Investment Income................................. .659 .689 .67 .66 .80375
Net Realized and Unrealized Gain/Loss................. .215 (.504) .8985 (1.1145) .05
-------- ------- ------- -------- -------
Total from Investment Operations........................ .874 .185 1.5685 (.4545) .85375
Less Distributions from Net Investment Income........... .660 .690 .6885 .6755 .80375
-------- ------- ------- -------- -------
Net Asset Value, End of the Period...................... $ 10.259 $10.045 $ 10.55 $ 9.67 $ 10.80
======== ======= ======= ======== =======
Total Return (a)........................................ 9.16% 1.90% 16.77% (4.26%) 8.15%
Net Assets at End of the Period (In millions)........... $1,930.4 $2,156.4 $2,544.5 $2,578.7 $3,418.8
Ratio of Expenses to Average Net Assets (b)............. 1.03% 1.06% 1.01% 1.02% .98%
Ratio of Net Investment Income to Average
Net Assets (b)........................................ 6.62% 6.88% 6.62% 6.96% 7.73%
Portfolio Turnover...................................... 114% 271% 231% 306% 239%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's reimbursement
of certain expenses was less than 0.01%.
See Notes to Financial Statements
B-39
<PAGE> 96
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(a) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the Period......................... $ 10.050 $ 10.56 $ 9.68 $ 10.80 $ 10.75
-------- -------- ------- --------- -------
Net Investment Income.......................................... .588 .635 .60 .60 .74
Net Realized and Unrealized Gain/Loss.......................... .211 (.527) .8965 (1.1275) .03
-------- -------- ------- --------- -------
Total from Investment Operations................................. .799 .108 1.4965 (.5275) .77
Less Distributions from Net Investment Income.................... .588 .618 .6165 .5925 .72
-------- -------- ------- --------- -------
Net Asset Value, End of the Period............................... $ 10.261 $ 10.050 $ 10.56 $ 9.68 $ 10.80
======== ======== ======= ========= =======
Total Return (b)................................................. 8.27% 1.17% 15.93% (4.95%) 7.31%
Net Assets at End of the Period (In millions).................... $ 199.2 $ 236.7 $ 285.5 $ 278.7 $ 368.4
Ratio of Expenses to Average Net Assets (c)...................... 1.78% 1.82% 1.77% 1.78% 1.74%
Ratio of Net Investment Income to Average Net Assets (c)......... 5.87% 6.13% 5.86% 6.20% 7.21%
Portfolio Turnover............................................... 114% 271% 231% 306% 239%
</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) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
B-40
<PAGE> 97
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
March 10, 1993
(Commencement
Year Ended December 31, of Distribution) to
--------------------------------- December 31,
Class C Shares 1997(a) 1996 1995 1994 1993 (a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $10.031 $ 10.54 $ 9.66 $10.79 $10.94
------- ------- ------ ------ ------
Net Investment Income .587 .623 .60 .60 .69
Net Realized and Unrealized Gain/Loss .209 (.514) .8965 (1.1375) (.3055)
------- ------- ------ ------ ------
Total from Investment Operations .796 .109 1.4965 (.5375) .3845
Less Distributions from Net Investment Income .588 .618 .6165 .5925 .5345
------- ------- ------ ------ ------
Net Asset Value, End of the Period $10.239 $10.031 $10.54 $ 9.66 $10.79
------- ------- ------ ------ ------
Total Return (b) 8.28% 1.18% 15.96% (5.05%) 3.58%*
Net Assets at End of the Period (In millions) $ 16.4 $ 21.6 $ 26.8 $ 32.0 $ 39.0
Ratio of Expenses to Average Net Assets (c) 1.79% 1.82% 1.77% 1.78% 1.72%
Ratio of Net Investment Income
to Average Net Assets (c) 5.87% 6.12% 5.86% 6.24% 7.54%
Portfolio Turnover 114% 271% 231% 306% 239%
</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) For the period ending December 31, 1993 and the year ending December 31,
1996, the impact on the Ratios of Expenses and Net Investment Income to
Average Net Assets due to VKAC's reimbursement of certain expenses was less
than 0.01%.
* Non-Annualized
B-41
<PAGE> 98
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Government Securities 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 a high level of income by
primarily investing in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund commenced investment
operations on July 16, 1984. The distribution of the Fund's Class B and C shares
commenced on December 20, 1991 and March 10, 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 are stated at value 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.
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 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 securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
C. Income and Expenses--Interest income is recorded on an accrual basis.
Original issue discount is amortized over the expected life of each applicable
security. Premiums on debt securities are not amortized. Expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $2,142,459,426; the gross unrealized appreciation is
$65,354,465 and the gross unrealized depreciation is $4,403,986, resulting in
net unrealized appreciation of $60,950,479.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At December 31, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $641,024,045 which will expire between December
31, 1998 and December 31, 2005. Of this amount, $211,266,437 will expire on
December 31, 1998.
B-42
<PAGE> 99
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
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
have been identified and appropriately reclassified. Permanent book and tax
basis differences relating to the recognition of net realized losses on paydowns
of mortgage pool obligations totaling $1,009,745 were reclassified from
accumulated net realized loss to accumulated undistributed net investment
income. Additionally, $34,785,440 of the capital loss carryforward for tax
purposes expired during 1997 and was reclassified from accumulated net realized
loss to capital.
E. Distribution of Income and Gains--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on futures transactions. All
short-term capital gains and a portion of futures gains are included in ordinary
income for tax purposes.
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 $1 billion...................................... .540 of 1%
Next $1 billion....................................... .515 of 1%
Next $1 billion....................................... .490 of 1%
Next $1 billion....................................... .440 of 1%
Next $1 billion....................................... .390 of 1%
Next $1 billion....................................... .340 of 1%
Next $1 billion....................................... .290 of 1%
Over $7 billion....................................... .240 of 1%
</TABLE>
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $95,200 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 $292,500 representing VKAC's 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 $3,027,300,
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 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.
B-43
<PAGE> 100
Notes to Financial Statements (Continued)
December 31, 1997
- ---------------------------------------------------------------------------
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 $2,568,785,271, $145,979,134 and
$12,372,383 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
===========================================================================
<S> <C> <C>
Sales:
Class A...................................... 11,053,580 $ 111,167,157
Class B...................................... 1,797,284 17,946,215
Class C...................................... 314,437 3,145,887
----------- -------------
Total Sales.................................... 13,165,301 $ 132,259,259
=========== =============
Dividend Reinvestment:
Class A...................................... 7,387,982 $ 73,655,314
Class B...................................... 769,452 7,676,933
Class C...................................... 68,029 677,650
----------- -------------
Total Dividend Reinvestment 8,225,463 $ 82,009,897
=========== =============
Repurchases:
Class A...................................... (44,948,129) $(450,176,664)
Class B...................................... (6,711,644) (67,148,668)
Class C...................................... (939,038) (9,378,985)
----------- -------------
Total Repurchases (52,598,811) $(526,704,317)
=========== =============
</TABLE>
At December 31, 1996, capital aggregated $2,865,431,316, $190,732,886 and
$18,193,187 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
===========================================================================
<S> <C> <C>
Sales:
Class A...................................... 19,916,758 $ 202,339,730
Class B...................................... 2,958,853 29,869,622
Class C...................................... 457,510 4,615,495
----------- -------------
Total Sales.................................... 23,333,121 $ 236,824,847
=========== =============
Dividend Reinvestment:
Class A...................................... 8,692,189 $ 87,523,376
Class B...................................... 948,561 9,565,633
Class C...................................... 90,225 908,298
----------- -------------
Total Dividend Reinvestment.................... 9,730,975 $97,997,307
=========== =============
</TABLE>
B-44
<PAGE> 101
Notes to Financial Statements (Continued)
December 31, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Repurchases:
<S> <C> <C>
Class A...................................... (55,118,215) $(556,059,402)
Class B...................................... (7,388,783) (74,318,737)
Class C...................................... (939,225) (9,425,881)
----------- -------------
Total Repurchases.............................. (63,446,223) $(639,804,020)
=========== =============
</TABLE>
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................................................ 4.00% 1.00%
Second............................................... 4.00% None
Third................................................ 3.00% None
Fourth............................................... 2.50% None
Fifth................................................ 1.50% None
Sixth and Thereafter................................. None None
</TABLE>
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$72,800 and CDSC on redeemed shares of approximately $493,100. Sales charges do
not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of government
securities, including paydowns on mortgage-backed securities and excluding
short-term investments, were $2,552,779,772 and $3,114,172,761, respectively.
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when taking delivery of
a security underlying a futures contract or forward. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract or forward.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
B-45
<PAGE> 102
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
A. Futures Contracts--A futures contract is an agreement involving the
delivery of a particular asset on a specified future date at an agreed upon
price. The Fund generally invests in exchange traded futures contracts on U.S.
Treasury Bonds and typically closes the contract prior to the delivery date.
These contracts are generally used to manage the portfolio's effective maturity
and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
Contracts
- -------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996 ................................... 4,946
Futures Opened ..................................................... 51,719
Futures Closed ..................................................... (52,665)
-------
Outstanding at December 31, 1997 ................................... 4,000
=======
</TABLE>
The futures contracts outstanding as of December 31, 1997, and the
descriptions and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
- -------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts:
U.S. Treasury Bond Future
Mar. 1998 (Current notional value of
$120,469 per contract) ........................ 3,250 $4,816,928
10-Year U.S. Treasury Note Future
Mar. 1998 (Current notional value of
$112,156 per contract) ........................ 750 203,066
----- ----------
4,000 $5,019,994
===== ==========
</TABLE>
B. Forward Commitments--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Fund and
dealers. While forward commitments are outstanding, the Fund maintains
sufficient collateral of cash or securities in a segregated account with its
custodian. Forward commitments are marked-to-market on a daily basis with
changes in value reflected as a component of unrealized appreciation/
depreciation. Purchasing securities on a forward commitment involves a risk that
the market value at the time of delivery may be lower than the agreed upon
purchase price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities.
B-46
<PAGE> 103
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
The following forward commitments were outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Par Unrealized
Amount Current Appreciation/
(000) Description Value Depreciation
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Contracts
$ 50,000 FNMA January 15-year Dwarf Forward, 7.00% .... $ 50,734,500 $ 250,125
Short Contracts
79,000 FNMA January Forward, 7.00% .................. 79,864,260 (197)
100,000 GNMA January Forward, 7.50% .................. 102,438,000 (438,000)
100,000 GNMA January Forward, 8.00% .................. 103,656,000 (218,500)
---------
$(406,572)
=========
</TABLE>
6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A 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 $1,879,000.
B-47
<PAGE> 104
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
(1) (a) First Amended and Restated Agreement and Declaration of
Trust(7)
(b) Certificate of Amendment(7)
(c) Amended and Restated Certificate of Designation+
(2) Amended and Restated Bylaws(7)
(4) (a) Specimen Class A Shares Certificate(8)
(b) Specimen Class B Shares Certificate(8)
(c) Specimen Class C Shares Certificate(8)
(5) Investment Advisory Agreement+
(6) (a) Distribution and Service Agreement+
(b) Form of Dealer Agreement(8)
(c) Form of Broker Agreement(8)
(d) Form of Bank Agreement(8)
(8) (a) Custodian Contact(9)
(b) Transfer Agency and Service Agreement+
(9) (a) Data Access Services Agreement(8)
(b) Fund Accounting Agreement(10)
(10) Opinion of Skadden, Arps, Meagher & Flom (Illinois)(8)
(11) Consent of Price Waterhouse LLP+
(13) Investment Letter(1)
(14) (a) Individual Retirement Account Brochure with Application(5)
(b) 403(b)(7) Custodial Account(3)
(c) ORP 403(b)(7) Custodial Account(3)
(d) Retirement Plans for the Small Business -- Forms Package and
Plan Documents(6)
(e) Prototype Profit Sharing/Money Purchase Plan and Trust(2)
(f) Prototype 401(k) Plan and Trust(2)
(g) Salary Reduction Simplified Employee Pension Plan(4)
(15) (a) Plan of Distribution Pursuant to 12b-1(8)
(b) Form of Shareholder Assistance Agreement(8)
(c) Form of Administrative Service Agreement(8)
(d) Service Plan(8)
(16) Computation Measure for Performance Information+
C-1
<PAGE> 105
<TABLE>
<C> <S> <C>
(17) (a) List of Certain Investment Companies in Response to Item
29(a)(9)
(17) (b) List of Officers and Directors of Van Kampen American
Capital Distributors, Inc. in Response to Item 29(b)(9)
(18) Amended Multiple Class Plan(8)
(24) Power of Attorney+
(27) Financial Data Schedules+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, File Number 2-90482,
filed June 21, 1984.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A, File Number 2-90482,
filed February 25, 1994.
(7) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File Number 2-90482,
filed April 19, 1996.
(8) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, File Number 2-90482,
Filed April 28, 1997.
(9) Incorporated herein by reference to Post-Effective Amendment No. 75 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Growth and Income Fund, File Number 2-21657, Filed on March 27,
1998.
(10) Incorporated herein by reference to Post-Effective Amendment No. 50 to
Registrant's Registration Statement on Form N-1A of Van Kampen American
Capital Comstock Fund, File No. 2-27778 filed on April 27, 1998.
+ Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF APRIL 3, 1998
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
---------------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
-------------- --------- --------- ---------
<S> <C> <C> <C>
Shares of Beneficial Interest, $0.01 par value 108,484 10,049 1,625
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
C-2
<PAGE> 106
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best 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.
C-3
<PAGE> 107
(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17(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 ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 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 to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-4
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES 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
GOVERNMENT SECURITIES 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>
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* 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> 109
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
INDEX TO EXHIBITS TO AMENDMENT NO. 23 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 29, 1998
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <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
(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 GOVERNMENT SECURITIES FUND
Amended and Restated Certificate of Designation
of
Van Kampen American Capital Government Securities Fund
The undersigned, being the Secretary of Van Kampen American Capital Government
Securities 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 Government Securities 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 GOVERNMENT SECURITIES 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
<PAGE> 2
which constitute the record forming the basis for the FUND's financial
statements, preparation of such 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:
.540% on the first $1 billion of the FUND's average daily net assets; .515% on
the next $1 billion of the FUND's average daily net assets; .490% on the next
$1 billion of the FUND's average daily net assets; .440% on the next $1 billion
of the FUND's average daily net assets; .390% on the next $1 billion of the
FUND's average daily net assets; .290% on the next $1 billion of the FUND's
average daily net assets; and .240% of any excess over $7 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. GOVERNMENT SECURITIES 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 GOVERNMENT SECURITIES
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 company or the acquisition by the Fund of
all or substantially all of the assets of or the outstanding
1
<PAGE> 2
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 harmless from any
damage or expense on account of any unlawful act by the Distributor or its
agents or
2
<PAGE> 3
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 Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall review, at least quarterly, a
3
<PAGE> 4
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.
(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
4
<PAGE> 5
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 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
5
<PAGE> 6
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 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.
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<PAGE> 7
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.
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<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 GOVERNMENT
SECURITIES 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
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<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
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<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 (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. 23 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 Government Securities 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
PRICE WATERHOUSE LLP
Chicago, Illinois
April 28, 1998
<PAGE> 1
EXHIBIT (16)
Government Securities Fund
CALCULATION OF YIELD
The Fund calculates its yield quotations based on a 30-day period ended on
the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a - b
YIELD (y) = 2[(------- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Class A Class B Class C
--------------- -------------- -------------
a = 10,623,605 a = 1,099,931 a = 89,790
b = 1,745,823 b = 312,002 b = 25,615
c = 189,220,970 c = 19,596,319 c = 1,605,008
d = 10.77 d = 10.26 d = 10.24
y = 5.29 y = 4.75 y = 4.73
<PAGE> 2
EXHIBIT (16)
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES FUND - CLASS A SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,039.84 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 3.98% = T
Excluding Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,091.64 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 9.16% = T
TOTAL RETURN CALCULATION FIVE YEARS ENDED DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,280.60 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 5.07% = T
Excluding Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,344.93 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 6.11% = T
<PAGE> 3
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES FUND - CLASS A SHARES
TOTAL RETURN CALCULATION TEN YEARS ENDED DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,121.24 = ERV
Ten years ended 12/31/97 10 = n
TOTAL RETURN FOR THE PERIOD 7.81% = T
Excluding Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,226.29 = ERV
Ten years ended 12/31/97 10 = n
TOTAL RETURN FOR THE PERIOD 8.33% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,883.77 = ERV
Inception through 12/31/97 13.46 = n
TOTAL RETURN FOR THE PERIOD 8.19% = T
Excluding Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $3,026.93 = ERV
Inception through 12/31/97 13.46 = n
TOTAL RETURN FOR THE PERIOD 8.58% = T
<PAGE> 4
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES 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 $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,883.77 = ERV
TOTAL RETURN FOR THE PERIOD 188.38% = T
Excluding Payment of the Sales Charge
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $3,026.93 = ERV
TOTAL RETURN FOR THE PERIOD 202.69% = T
<PAGE> 5
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES FUND - CLASS B SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,042.68 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 4.27% = T
Excluding Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,082.68 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 8.27% = T
TOTAL RETURN CALCULATION FIVE YEARS ENDED DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,280.99 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 5.08% = T
Excluding Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,295.31 = ERV
Five years ended 12/31/97 5 = n
TOTAL RETURN FOR THE PERIOD 5.31% = T
<PAGE> 6
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES FUND - CLASS B SHARES
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,381.01 = ERV
Inception through 12/31/97 6.03 = n
TOTAL RETURN FOR THE PERIOD 5.50% = T
Excluding Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,381.01 = ERV
Inception through 12/31/97 6.03 = n
TOTAL RETURN FOR THE PERIOD 5.50% = T
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH DECEMBER 31, 1997
Formula ERV - P
-------
P = T
Including Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,381.01 = ERV
TOTAL RETURN FOR THE PERIOD 38.10% = T
Excluding Payment of the CDSC
Net Asset Value $10.26
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,381.01 = ERV
TOTAL RETURN FOR THE PERIOD 38.10% = T
<PAGE> 7
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES FUND - CLASS C SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $10.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,072.84 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 7.28% = T
Excluding Payment of the CDSC
Net Asset Value $10.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,082.84 = ERV
One year period ended 12/31/97 1 = n
TOTAL RETURN FOR THE PERIOD 8.28% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH DECEMBER 31, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $10.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,249.36 = ERV
Inception through 12/31/97 4.81 = n
TOTAL RETURN FOR THE PERIOD 4.74% = T
Excluding Payment of the CDSC
Net Asset Value $10.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,249.36 = ERV
Inception through 12/31/97 4.81 = n
TOTAL RETURN FOR THE PERIOD 4.74% = T
<PAGE> 8
VAN KAMPEN AMERICAN CAPITAL
GOVERNMENT SECURITIES 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 $10.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,249.36 = ERV
TOTAL RETURN FOR THE PERIOD 24.94% = T
Excluding Payment of the CDSC
Net Asset Value $10.24
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,249.36 = ERV
TOTAL RETURN FOR THE PERIOD 24.94% = 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 24, 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 B. ROONEY Trustee/Director
----------------------------------
Phillip B. 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 EMREGING 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> 11
<NAME> Gov't Secs A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,140,723<F1>
<INVESTMENTS-AT-VALUE> 2,203,410<F1>
<RECEIVABLES> 31,852<F1>
<ASSETS-OTHER> 132<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 2,235,394<F1>
<PAYABLE-FOR-SECURITIES> 79,790<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,654<F1>
<TOTAL-LIABILITIES> 89,444<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,568,785
<SHARES-COMMON-STOCK> 188,164
<SHARES-COMMON-PRIOR> 214,671
<ACCUMULATED-NII-CURRENT> 276<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (648,763)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 67,300<F1>
<NET-ASSETS> 1,930,427
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 171,732<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,847)<F1>
<NET-INVESTMENT-INCOME> 146,885<F1>
<REALIZED-GAINS-CURRENT> (27,879)<F1>
<APPREC-INCREASE-CURRENT> 71,602<F1>
<NET-CHANGE-FROM-OPS> 190,608<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (133,144)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,053
<NUMBER-OF-SHARES-REDEEMED> (44,948)
<SHARES-REINVESTED> 7,388
<NET-CHANGE-IN-ASSETS> (225,965)
<ACCUMULATED-NII-PRIOR> 1,350<F1>
<ACCUMULATED-GAINS-PRIOR> (656,679)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 11,754<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,847<F1>
<AVERAGE-NET-ASSETS> 2,011,638
<PER-SHARE-NAV-BEGIN> 10.045
<PER-SHARE-NII> 0.659
<PER-SHARE-GAIN-APPREC> 0.215
<PER-SHARE-DIVIDEND> (0.660)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.259
<EXPENSE-RATIO> 1.03
<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> 12
<NAME> Gov't Secs B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,140,723<F1>
<INVESTMENTS-AT-VALUE> 2,203,410<F1>
<RECEIVABLES> 31,852<F1>
<ASSETS-OTHER> 132<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 2,235,394<F1>
<PAYABLE-FOR-SECURITIES> 79,790<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,654<F1>
<TOTAL-LIABILITIES> 89,444<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145,979
<SHARES-COMMON-STOCK> 19,408
<SHARES-COMMON-PRIOR> 23,554
<ACCUMULATED-NII-CURRENT> 276<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 648,763<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 67,300<F1>
<NET-ASSETS> 199,153
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 171,732<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,847)<F1>
<NET-INVESTMENT-INCOME> 146,885<F1>
<REALIZED-GAINS-CURRENT> 27,879<F1>
<APPREC-INCREASE-CURRENT> 71,602<F1>
<NET-CHANGE-FROM-OPS> 190,608<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12,711)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,797
<NUMBER-OF-SHARES-REDEEMED> (6,712)
<SHARES-REINVESTED> 769
<NET-CHANGE-IN-ASSETS> (37,560)
<ACCUMULATED-NII-PRIOR> 1,350<F1>
<ACCUMULATED-GAINS-PRIOR> (656,679)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 11,754<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,847<F1>
<AVERAGE-NET-ASSETS> 215,032
<PER-SHARE-NAV-BEGIN> 10.050
<PER-SHARE-NII> 0.588
<PER-SHARE-GAIN-APPREC> 0.211
<PER-SHARE-DIVIDEND> (0.588)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.261
<EXPENSE-RATIO> 1.78
<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> 13
<NAME> Gov't Secs C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,140,723<F1>
<INVESTMENTS-AT-VALUE> 2,203,410<F1>
<RECEIVABLES> 31,852<F1>
<ASSETS-OTHER> 132<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 2,235,394<F1>
<PAYABLE-FOR-SECURITIES> 79,790<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,654<F1>
<TOTAL-LIABILITIES> 89,444<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,373
<SHARES-COMMON-STOCK> 1,599
<SHARES-COMMON-PRIOR> 2,155
<ACCUMULATED-NII-CURRENT> 276<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (648,763)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 67,300<F1>
<NET-ASSETS> 16,370
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 171,732<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,847)<F1>
<NET-INVESTMENT-INCOME> 146,885<F1>
<REALIZED-GAINS-CURRENT> (27,879)<F1>
<APPREC-INCREASE-CURRENT> 71,602<F1>
<NET-CHANGE-FROM-OPS> 190,608<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,094)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 315
<NUMBER-OF-SHARES-REDEEMED> (939)
<SHARES-REINVESTED> 68
<NET-CHANGE-IN-ASSETS> (5,251)
<ACCUMULATED-NII-PRIOR> 1,350<F1>
<ACCUMULATED-GAINS-PRIOR> (656,679)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 11,754<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,847<F1>
<AVERAGE-NET-ASSETS> 18,386
<PER-SHARE-NAV-BEGIN> 10.031
<PER-SHARE-NII> 0.587
<PER-SHARE-GAIN-APPREC> 0.209
<PER-SHARE-DIVIDEND> (0.588)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.239
<EXPENSE-RATIO> 1.79
<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>
