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VAN KAMPEN AMERICAN CAPITAL
SHORT-TERM GLOBAL INCOME FUND
SUPPLEMENT DATED AUGUST 15, 1997 TO THE PROSPECTUS
DATED OCTOBER 28, 1996, AS PREVIOUSLY SUPPLEMENTED ON
FEBRUARY 11, 1997, JANUARY 2, 1997 AND NOVEMBER 1, 1996.
The Board of Trustees has approved changes to the Fund's non-fundamental
investment policies to permit the Fund to maintain a dollar-weighted average
portfolio duration of not more than three years, instead of maintaining a
dollar-weighted average portfolio maturity of not more than three years. In
addition, the Board of Trustees approved the addition of certain investment
policies to the Fund in order to enable the Fund to (i) invest in asset-backed,
mortgage pass-through and structured mortgage products and (ii) invest up to 20%
of the Fund's total net assets in non-investment grade debt instruments. The
Fund believes these changes will provide greater flexibility in achieving its
investment objectives.
The first sentence of the second paragraph of the front cover of the
Prospectus, the first sentence of the section of the Prospectus entitled
"PROSPECTUS SUMMARY-INVESTMENT POLICIES", and the second sentence of the first
paragraph and the second sentence of the sixth paragraph of the section of the
Prospectus entitled "INVESTMENT OBJECTIVE AND POLICIES" are hereby amended by
replacing the phrase: "...a dollar-weighted average portfolio maturity of not
more than three years." with the phrase: "...a dollar-weighted average portfolio
duration of not more than three years."
The first sentence of the third paragraph of the section of the Prospectus
entitled "Investment Objectives and Policies" is hereby amended by replacing it
with the following "The Fund seeks to minimize credit risk by investing at least
80% of its total net assets in investment grade debt securities. The second
sentence of such paragraph is hereby amended by replacing the words
"Accordingly, the Fund may only invest in..." with the words "Accordingly, the
Fund will invest at least 80% of its net total assets in..."
The section of the Prospectus entitled "INVESTMENT OBJECTIVE AND POLICIES"
is hereby supplemented by adding the following:
The Fund may invest up to 20% of its net total assets in lower grade
debt securities. Lower grade debt securities are securities rated BB or
below by S&P, Ba or below by Moody's, comparably rated by any other NRSRO
or, if not rated by any NRSRO, determined by the Adviser to be of
comparable quality to income securities so rated.
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Lower grade debt securities are commonly referred to as "junk bonds" and
are regarded by S&P and Moody's as predominately speculative with respect
to the capacity to pay interest or repay principal in accordance with their
terms. Lower grade debt securities involve a greater degree of credit risk
than investment grade debt securities. There is no minimum rating or
comparable quality standard imposed on the Fund's investments and the Fund
may purchase debt securities that are rated D and that are in default in
the payment of interest or repayment of principal. In S&P's view, the D
rating category is used when interest payments or principal payments are
not made on the date due even if an applicable grace period has not
expired, unless S&P believes that such payments will be made during such
grace period. The 'D' rating also is used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed
securities are securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans
secured by real property. Mortgage-backed securities may be issued by the
U.S. government or its agencies or by private entities. The yield
characteristics of mortgage-backed securities differ from traditional debt
securities. Interest and principal prepayments are made more frequently,
usually monthly, and principal may be prepaid at any time. Mortgage-backed
securities may decrease in value as a result of increases in interest rates
and may benefit less than other fixed income securities from declining
interest rates because of the risk of prepayment. Amounts available for
reinvestment by the Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Asset-baked
securities have structural characteristics similar to mortgage-backed
securities, but have underlying assets such as automobile and credit card
receivables and home equity loans. In general, these types of loans are of
shorter average life than mortgage loans and are less likely to have
substantial prepayments.
STRIPPED INCOME SECURITIES. Stripped income securities are derivative
obligations representing an interest in all or a portion of the income or
principal components of an underlying or related security, a pool of
securities or other assets. 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 market values of stripped income securities tend to be more
volatile in response to changes in interest rates than are
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conventional income securities. In the case of mortgage-backed IOs, if the
underlying assets experience greater than anticipated prepayments of
principal, the Fund may not fully recoup its initial investment.
FLOATING AND VARIABLE RATE INCOME SECURITIES. Income securities may
provide for floating or variable rate interest or dividend payments. The
Fund may invest in derivative floating and variable rate securities such as
inverse floaters, whose rates vary inversely with market rates of interest,
or range floaters or capped floaters, whose rates are subject to periodic
or lifetime caps. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of
increases and decreases in the value of securities whose rates vary
inversely with changes in market rates of interest generally will be larger
than comparable changes in the value of an equal principal amount of a
fixed rate security having similar credit quality, redemption provisions
and maturity.
BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign
debt of countries that have restructured or are in the process of
restructuring sovereign debt pursuant to the Brady Plan. "Brady Bonds" are
debt securities issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. Brady Bonds may also be issued in respect of
new money being advanced by existing lenders in connection with the debt
restructuring. Certain Brady Bonds have been collateralized as to principal
due at maturity by U.S. Treasury zero coupon bonds with a maturity equal to
the final maturity of such Brady Bonds. Brady Bonds have been issued only
since 1989, and accordingly do not have a long payment history. In light of
the risk of Brady Bonds including, among other factors, the history of
defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are
to be viewed as speculative.
STRUCTURED INVESTMENTS. The fund may invest a portion of its assets in
interests in entities organized and operated for the purpose of
restructuring the investment characteristics of other income securities.
This type of restructuring involves the deposit with or purchase by an
entity of income securities (such as mortgages, bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the
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underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics
such as varying maturities, payment priorities and interest rate
provisions.
DOMESTIC LOWER GRADE INCOME SECURITIES. Domestic lower grade income
securities are income securities of domestic issuers rated below investment
grade or, if not rated, determine by the Adviser to be of comparable
quality to securities rated below investment grade. Lower grade income
securities commonly are referred to as "junk bonds." Such securities are
issued primarily by domestic corporations. Investment in lower grade income
securities involves certain risks. See "Special Risk Considerations
Regarding Lower Grade Debt Securities."
FOREIGN LOWER GRADE INCOME SECURITIES. Foreign lower grade income
securities are income securities issued by non-domestic issuers and rated
below investment grade or, if not rated, determined by the Adviser to be of
comparable quality to income securities rated below investment grade. Lower
grade income securities commonly are referred to as "junk bonds." Such
securities may include income securities issued or guaranteed by foreign
governments or their agencies, central banks of foreign countries and
corporations or other business entities. Investments in this sector may
include interests or assignments in nonperforming or restructured income
securities. Issuers of foreign lower grade income securities frequently
will be located in emerging market countries, including countries in Latin
America, Eastern Europe, Africa and much of Asia. Investment in emerging
market countries involves significant risks. See "Special Risk
Considerations Regarding Medium and Lower Grade Debt Securities."
SPECIAL RISK CONSIDERATIONS REGARDING LOWER GRADE DEBT SECURITIES. Up
to 20% of the Fund's assets may be invested in lower grade securities,
commonly referred to as "junk bonds." Debt securities rated BB or below by
S&P or below Ba by Moody's are deemed by S&P and Moody's to be
predominately speculative with respect to the insurer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. The lower grade debt securities in which the Fund may invest
may include securities having the lowest ratings assigned by S&P or Moody's
and, together with comparable unrated securities, may include securities in
default or that face the risk of default with respect to the payment of
principal or interest or that have filed for bankruptcy protection. These
securities
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are considered to have extremely poor prospects of ever attaining any real
investment standing. See the Statement of Additional Information for a more
complete description of S&P and Moody ratings. Lower grade debt securities
are especially subject to adverse changes in general economic conditions,
the industries in which the issuers are engaged, the financial condition of
the issuers and prevailing interest rates. Issuers of lower grade debt
securities are often highly leveraged and may not have available to them
more traditional methods of financing. During periods of economic downturn
or rising interest rates, highly leveraged issuers may experience financial
stress which could adversely affect their ability to make payments of
principal and interest and increase the possibility of default. Lower grade
debt securities are generally unsecured and are often subordinated to other
debt securities or the issuer. To the extent the Fund is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings, the Fund may incur additional expenses and, with
respect to foreign lower grade debt securities, may have limited legal
recourse in the event of a default. Lower grade debt securities frequently
have call or buy-back features which permit an issuer to call or repurchase
the security prior to its maturity. If an issuer exercises these provisions
in a declining interest rate environment, the Fund may have to reinvest in
lower yielding securities, resulting in a decrease in income earned by the
Fund.
