VAN KAMPEN TRUST, 485APOS, 1999-05-28

VAN KAMPEN TRUST
485APOS, 1999-05-28

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999

REGISTRATION NOS. 33-4410
811-4629
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]

Post-Effective Amendment No. 44 [X]
and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 45 [X]
</TABLE>

VAN KAMPEN TRUST
(Exact Name of Registrant as Specified in Agreement and Declaration of Trust)

1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555

(Address of Principal Executive Offices) (Zip Code)

(630) 684-6000
Registrant's Telephone Number, Including Area Code

A. THOMAS SMITH III

Executive Vice President,
General Counsel and Secretary
Van Kampen Investments Inc.

1 Parkview Plaza

PO Box 5555

Oakbrook Terrace, Illinois 60181-5555

(Name and Address of Agent for Service)
------------------------

Copies to:

WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 W. Wacker Drive
Chicago, Illinois 60606
(312) 407-0700
------------------------

Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.

It is proposed that this filing will become effective:

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)

[X] on July 29, 1999 pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate check the following box:

[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This Post-Effective Amendment No. 44 to the Registrant's Registration
Statement contains three Prospectuses and three Statements of Additional
Information describing three series of the Registrant (the "Applicable Series").
The Registration Statement is organized as follows:

Facing Page

Prospectuses with respect to the Applicable Series in the following order:

Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund

Statements of Additional Information with respect to the Applicable Series
in the following order:

Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund

Part C Information

<PAGE> 3

The information in this prospectus is not complete and may be changed. The
Fund may not sell these securities until the post-effective amendment to
the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities.

SUBJECT TO COMPLETION -- DATED MAY 28, 1999

VAN KAMPEN

HIGH YIELD FUND

Van Kampen High Yield Fund is a mutual fund with a primary investment objective
to seek to provide a high level of current income. As a secondary investment
objective, the Fund seeks capital appreciation. The Fund's management seeks to
achieve the investment objectives primarily through investment in a diversified
portfolio of medium- and lower-grade domestic corporate debt securities.

Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulators, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. It
is a criminal offense to state otherwise.

This prospectus is dated , 1999.

[VAN KAMPEN FUNDS LOGO]
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 6
Investment Objectives and Policies................ 7
Investment Advisory Services...................... 13
Purchase of Shares................................ 14
Redemption of Shares.............................. 20
Distributions from the Fund....................... 22
Shareholder Services.............................. 22
Federal Income Taxation........................... 24
Financial Highlights.............................. 26
Appendix -- Description of Securities Ratings..... A-1
</TABLE>

No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representation 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.
<PAGE> 5

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

The Fund is a mutual fund with a primary investment objective to seek to provide
a high level of current income. As a secondary investment objective, the Fund
seeks capital appreciation. There can be no assurance that the Fund will achieve
its investment objectives.

INVESTMENT STRATEGIES

Under normal market conditions, the Fund's management seeks to achieve the
investment objectives by investing primarily in a diversified portfolio of
medium- and lower-grade domestic corporate debt securities. The Fund also may
invest up to 35% of its total assets in debt securities of similar quality
issued by foreign governments or foreign corporations. The Fund invests in a
broad range of debt securities represented by various companies and industries
and traded on various markets. The Fund buys and sells securities with a view to
seeking a high level of current income and capital appreciation over the
long-term. Lower-grade securities are commonly referred to as "junk bonds" (see
sidebar for an explanation of quality ratings). The Fund's investments in
medium- and lower-grade quality securities involve special risks as compared to
higher-grade securities. The Fund may purchase or sell securities on a
when-issued or delayed delivery basis. The Fund may purchase or sell certain
derivative instruments (such as options, futures and options on futures and
interest rate swaps or other interest rate-related transactions) for various
risk management and hedging purposes.

INVESTMENT RISKS

An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. With its portfolio of medium- and
lower-grade securities, the Fund has greater risks than a fund owning
higher-grade securities.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in securities with
medium- and low-credit quality, the Fund is subject to a higher level of credit
risk than a fund that buys only investment grade securities. The credit quality
of "noninvestment grade" securities is considered speculative by recognized
rating agencies with respect to the issuer's continuing ability to pay interest
and principal. Lower-grade securities may have less liquidity and a higher
incidence of default than investments in higher-grade securities. The Fund may
incur higher expenditures to protect the Fund's interest in such securities. The
credit risks and market prices of lower-grade securities are more sensitive to
negative issuer developments, such as reduced revenues or increased
expenditures, or adverse economic conditions, such as a recession, than are
higher-grade securities.

Market risk is often greater among certain types of debt securities, such as
zero-coupon bonds, which do not make regular interest payments but are instead
bought at a discount to their face values and paid in full upon maturity. As
interest rates change, these securities often fluctuate more in price than
securities that make regular interest payment and may subject the Fund to
greater market risk than a fund that does not own these types of securities.

When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.

3
<PAGE> 6

UNDERSTANDING

QUALITY RATINGS

Debt Securities ratings are based on the issuer's ability to pay interest
and repay the principal. Securities with ratings above the line are
considered "investment grade," while those with ratings below the line are
regarded as "noninvestment grade," or "junk bonds." A detailed explanation
of these ratings can be found in the appendix to this prospectus.

<TABLE>
<CAPTION>
S&P Moody's Meaning
- ------------------------------------------------------
<C> <S> <C>
AAA Aaa Highest quality
......................................................
AA Aa High quality
......................................................
Aa A Above-average quality
......................................................
BBB Baa Average quality
- ------------------------------------------------------
BB Ba Below-average quality
......................................................
B B Marginal quality
......................................................
CCC Caa Poor quality
......................................................
CC Ca Highly speculative
......................................................
C C Lowest quality
......................................................
D -- In default
......................................................
</TABLE>

CALL RISK. If interest rates fall, it is possible that issuers of debt
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities would be reinvested by the Fund in securities with the new, lower
interest rates, resulting in a possible decline in the Fund's income and
distributions to shareholders.

FOREIGN RISKS. Because the Fund may own securities from foreign issuers, it may
be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options and futures are examples of derivatives.
Such transactions involve risks different from the direct investment in
underlying securities such as imperfect correlation between the value of the
instruments and the underlying assets; risks of default by the other party to
certain transactions; risks that the transactions may incur losses that
partially or completely offset gains in portfolio positions; risks that the
transactions may not be liquid; and manager risk.

MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.

An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be appropriate
for investors who:

- - Seek a high level of monthly income.

- - Are willing to take on the substantially increased risks of medium- and
lower-grade securities in exchange for potentially higher income.

- - Wish to diversify their personal investment portfolios with a Fund that
invests primarily in medium- and lower-grade debt securities.

Investors should carefully consider the additional risks associated with
investments in medium- and lower-grade securities. An investment in the Fund may
not be appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision about the Fund. An
investment in the Fund is intended to be a long-term investment, and the Fund
should not be used as a trading vehicle.

ANNUAL PERFORMANCE

4
<PAGE> 7

been included, the returns shown below would have been lower. Remember that the
past performance of the Fund is not indicative of its future performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989 8.55
'1990 -11.59
'1991 35.13
'1992 17.01
'1993 17.73
'1994 -3.34
'1995 17.52
'1996 12.48
'1997 10.97
'1998 -1.45
</TABLE>

The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.

During the ten-year period shown in the bar chart, the highest quarterly return
was 15.17% (for the quarter ended March 31, 1991) and the lowest quarterly
return was -8.36% (for the quarter ended September 30, 1993).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with the Credit Suisse
First Boston High Yield Index, a broad-based market index that the Fund's
management believes is an applicable benchmark for the Fund. The Fund's
performance figures include the maximum sales charges paid by investors. The
index' performance figures do not include commissions or sale charges that would
be paid by investors purchasing the securities represented by the index. Average
annual total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Fund is not indicative of its future
performance.

<TABLE>
<CAPTION>
Average Annual
Total Returns Past 10
for the Years or
Periods Ended Past Past Since
December 31, 1998 1 Year 5 Years Inception
- -------------------------------------------------------
<S> <C> <C> <C>
Van Kampen High
Yield Fund--
Class A Shares -1.45% 6.92% 7.72%
Credit Suisse
First Boston High
Yield Index % % %
.......................................................
Van Kampen High
Yield Fund--
Class B Shares -2.30% 6.08% 6.85%(1)
Credit Suisse
First Boston High
Yield Index % % %
.......................................................
Van Kampen High
Yield Fund--
Class C Shares -2.19% 6.06% 6.39%(2)
Credit Suisse
First Boston High
Yield Index % % %
.......................................................
</TABLE>

Inception date: (1) 5/17/93, (2) 8/13/93.

The current yield for the thirty-day period ended March 31, 1999 is 9.22% for
Class A Shares, 8.90% for Class B Shares and 8.90% for Class C Shares. Absent
the investment adviser's waiver or reimbursement of a portion of management fees
and/or other expenses of the Fund, the current yield for the thirty-day period
ended March 31,1999 is 9.12% for Class A Shares, 8.80% for Class B Shares and
8.80% for Class C Shares. Investors can obtain the current yield of the Fund for
each class of shares by calling (800) 341-2911.

5
<PAGE> 8

FEES AND EXPENSES
OF THE FUND

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

(fees paid directly from your investment)

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a 4.75%(1) None None
percentage of
offering price)
............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption None(2) 4.00%(3) 1.00%(4)
proceeds)
............................................................
Maximum sales charge
(load) imposed on
reinvested dividends
(as a percentage of None None None
offering price)
............................................................
Redemption fees (as a
percentage of amount None None None
redeemed)
............................................................
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 deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares -- Class A Shares."

(3) The maximum deferred sales charge is 4.00% in the first year after purchase
and declining thereafter as follows:

Year 1-4.00%

Year 2-3.75%

Year 3-3.50%

Year 4-2.50%
Year 5-1.50%

Year 6-1.00%

After-None
See "Purchase of Shares -- Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."

ANNUAL FUND

OPERATING EXPENSES

(expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees(1) 0.75% 0.75% 0.75%
..............................................................
Distribution and/or
Service (12b-1) 0.24% 1.00%(3) 1.00%(3)
Fees(2)
..............................................................
Other Expenses(1) 0.28% 0.28% 0.28%
..............................................................
Total Annual Fund
Operating Expenses(1) 1.27% 2.03% 2.03%
..............................................................
</TABLE>

(1) The Fund's investment adviser is currently waiving or reimbursing a portion
of the Fund's Management Fees or Other Expenses such that the actual Total
Annual Fund Operating Expenses for the fiscal period year ended March 31,
1999 were 1.17%, 1.93% and 1.93% for Class A Shares. Class B Shares and
Class C Shares, respectively. The fee waivers or expense reimbursements can
be terminated at any time.

(2) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."

(3) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.

Example:

The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% annual return each year and
that the Fund's operating expenses remain the same each year (except for the
ten-year amounts for Class B Shares which reflect the conversion of Class B
Shares to Class A Shares after eight years). Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $598 $859 $1,139 $1,936
......................................................................
Class B Shares $606 $987 $1,243 $2,163*
......................................................................
Class C Shares $306 $637 $1,093 $2,358
......................................................................
</TABLE>

6
<PAGE> 9

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $598 $859 $1,139 $1,936
.......................................................................
Class B Shares $206 $637 $1,093 $2,163*
.......................................................................
Class C Shares $206 $637 $1,093 $2,358
.......................................................................
</TABLE>

* Based on conversion to Class A Shares after eight years.

INVESTMENT OBJECTIVES

AND POLICIES

The Fund's primary investment objective to seek to provide a high level of
current income. As a secondary investment objective, the Fund seeks capital
appreciation. The Fund's investment objectives are fundamental policies and may
not be changed without shareholder approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). There are risks inherent in all
investments in securities; accordingly there can be no assurance that the Fund
will achieve its investment objectives.

Under normal market conditions, the Fund's investment adviser seeks to achieve
the investment objectives by investing primarily in a diversified portfolio of
medium- and lower-grade domestic corporate debt securities. The Fund also may
invest up to 35% of its total assets in debt securities of similar quality
issued by foreign governments and foreign corporations. Under normal market
conditions, the Fund invests primarily in securities rated at the time of
purchase BBB or lower by Standard & Poor's ("S&P") or rated Baa or lower by
Moody's Investors Service, Inc. ("Moody's") or comparably rated short-term
securities and unrated securities determined by the Fund's investment adviser to
be of comparable quality at the time of purchase. With respect to such
investments, the Fund has not established any limit on the percentage of its
portfolio which may be invested in securities in any one rating category.
Securities rated BB or lower by S&P or rated Ba or lower by Moody's or
comparably rated short-term securities and unrated securities of comparable
quality are commonly referred to as "junk bonds" and involve special risks as
compared to investments in higher-grade securities. See "Risks of Investing in
Medium- and Lower-Grade Securities" below.

The Fund invests in a broad range of debt securities represented by various
companies and industries and traded in various markets. The Fund buys and sells
securities with in view to seeking a high level of current income and capital
appreciation over the long-term. The higher yields sought by the Fund are
generally obtainable from securities in the medium-and lower-credit quality
range. Such securities tend to offer higher yields than higher-grade securities
with the same maturities because the historical conditions of the issuers of
such securities may not have been as strong as those of other issuers. These
securities may be issued in connection with corporate restructurings such as
leveraged buyouts, mergers, acquisitions, debt recapitalization or similar
events. These securities are often issued by smaller, less creditworthy
companies or companies with substantial debt and may include financially
troubled companies or companies in default or in restructuring. Such securities
often are subordinated to the prior claims of banks and other senior lenders.
Lower-grade securities are regarded by the rating agencies as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. The ratings of S&P and Moody's represent their opinions
of the quality of the debt securities they undertake to rate, but not the market
risk of such securities. It should be emphasized however, that ratings are
general and are not absolute standards of quality.

The Fund's investment adviser seeks to minimize the risks involved in investing
in medium- and lower-grade municipal securities through diversification, careful
investment analysis and attention to current developments and trends in the
economy and financial and credit markets. In purchasing and selling securities,
the Fund's investment adviser evaluates the issuers of such securities based on
a number of factors, including but not limited to the issuers's financial
resources, its sensitivity to changing economic conditions and trends, its
revenues or earnings potential, its operating history, its current borrowing
requirements and debt maturities, the quality of its management and regulatory
matters. The Fund's investment adviser may consider the ratings from S&P and
Moody's in evaluating securities but it does not rely primarily on such ratings.
The investment adviser continuously monitors the issuers of debt securities held
by the Fund.

7
<PAGE> 10

RISKS OF MEDIUM- OR LOWER-GRADE SECURITIES

Securities which are in the medium- or lower-grade categories generally offer a
higher current yield than is offered by higher-grade securities of similar
maturities, but they also generally involve greater risks, such as greater
credit risk, greater market risk and volatility, greater liquidity concerns and
potentially greater manager risk. Investors should carefully consider the risks
of owning shares of a portfolio which invests in medium- or lower-grade
securities before investing in the Fund.

Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Medium- and lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of medium- or lower-grade debt
securities to pay interest and to repay principal, to meet projected financial
goals or to obtain additional financing. In the event that an issuer of
securities held by the Fund experiences difficulties in the timely payment of
principal and interest and such issuer seeks to restructure the terms of its
borrowings, the Fund may incur additional expenses and may determine to invest
additional assets with respect to such issuer or the project or projects to
which the Fund's securities relate. Further, the Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of interest or the repayment of principal on its portfolio holdings,
and the Fund may be unable to obtain full recovery on such amounts.

Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of medium- or lower-grade debt securities generally are less
sensitive to changes in interest rate and are more sensitive to general adverse
economic changes or specific developments with respect to the particular issuers
than are the secondary market prices of higher-grade debt securities. A
significant increase in interest rates or a general economic downturn could
severely disrupt the market for medium- or lower-grade securities and adversely
affect the market value of such securities. Such events also could lead to a
higher incidence of default by issuers of medium- or lower-grade securities as
compared with higher-grade securities. In addition, changes in credit risks,
interest rates, the credit markets or periods of general economic uncertainty
can be expected to result in increased volatility in the market price of the
medium- or lower-grade securities in the Fund and thus in the net asset value of
the Fund. Adverse publicity and investor perceptions, whether or not based on
rational analysis, may affect the value, volatility and liquidity of medium- or
lower-grade securities.

The markets for medium- or lower-grade securities may be less liquid than the
markets for higher-grade securities. Liquidity relates to the ability of a fund
to sell a security in a timely manner at a price which reflects the value of
that security. To the extent that there is no established retail market for some
of the medium- or lower-grade securities in which the Fund may invest, trading
in such securities may be relatively inactive. Prices of medium- or lower-grade
securities may decline rapidly in the event a significant number of holders
decide to sell. Changes in expectations regarding an individual issuer of
medium- or lower-grade securities generally could reduce market liquidity for
such securities and make their sale by the Fund more difficult, at least in the
absence of price concessions. The effects of adverse publicity and investor
perceptions may be more pronounced for securities for which no established
retail market exists as compared with the effects on securities for which such a
market does exist. An economic downturn or an increase in interest rates could
severely disrupt the market for such securities and adversely affect the value
of outstanding securities or the ability of the issuers to repay principal and
interest. Further, the Fund may have more difficulty selling such securities in
a timely manner and at their stated value than would be the case for securities
for which an established retail market does exist.

8
<PAGE> 11

The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Trustees. During
periods of reduced market liquidity or in the absence of readily available
market quotations for medium- or lower-grade municipal securities held in the
Fund's portfolio, the ability of the Fund's investment adviser to value the
Fund's securities becomes more difficult and the judgment of the Fund's
investment adviser may play a greater role in the valuation of the Fund's
securities due to the reduced availability of reliable objective data.

The Fund may invest in securities not producing immediate cash income when their
effective yield over comparable instruments producing cash income make these
investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these concerns
against the expected total returns from such instruments.

The Fund's investments in lower-grade securities may include securities rated D
by S&P or C by Moody's (the lowest-grade assigned) and unrated securities of
comparable quality. Securities assigned such ratings include those of companies
that are in default or are in bankruptcy or reorganization. Securities of such
companies are regarded by the rating agencies as having extremely poor prospects
of ever attaining any real investment standing and are usually available at deep
discounts from the face values of the instruments. A security purchased at a
deep discount may currently pay a very high effective yield. In addition, if the
financial condition of the issuer improves, the underlying value of the security
may increase, resulting in a capital gain. If the company defaults on its
obligations or remains in default, or if the plan of reorganization does not
provide sufficient payments for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Fund's investment
adviser will balance the benefits of deep discount securities with their risks.
While a diversified portfolio may reduce the overall impact of a deep discount
security that is in default or loses its value, the risk cannot be eliminated.

Many medium- and lower-grade debt securities generally are not listed for
trading on any national securities exchange, and many issuers of medium-and
lower-grade debt securities choose not to have a rating assigned to their
obligations by any nationally recognized statistical rating organization. As a
result, the Fund's portfolio may consist of a relatively high proportion of
unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by the Fund and may
also limit the ability of the Fund to sell such securities at their fair value
either to meet redemption requests or in response to changes in the economy or
the financial markets. Further, to the extent the Fund owns or may acquire
illiquid or restricted medium- or lower-grade securities, these securities may
involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.

The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain medium- or lower-grade
issuers may be less extensive than other issuers. In its analysis, the Fund's
investment adviser may consider the credit ratings of S&P and Moody's in
evaluating securities although the investment adviser does not rely primarily on
these ratings. Ratings evaluate only the safety of principal and interest
payments, not the market value risk. Additionally, ratings are general and not
absolute standards of quality, and credit ratings are subject to the risk that
the creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Because of the number of
investment considerations involved in investing in medium- or lower-grade
securities, achievement of the Fund's investment objectives may be more
dependent upon the investment adviser's credit analysis than is the case with
investing in higher-grade securities.

9
<PAGE> 12

New or proposed laws may have an impact on the market for medium- or lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for medium- or lower-grade
securities.

Special tax considerations are associated with investing in certain medium- or
lower-grade securities, such as zero coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute substantially all of its income to its shareholders to
qualify for pass-through treatment under federal income tax law and may,
therefore, have to dispose of its portfolio securities to satisfy distribution
requirements.

The table below sets forth the percentages of the Fund's assets invested during
the fiscal period ended March 31, 1999 in the various S&P and Moody's rating
categories and in unrated securities determined by the Fund's investment adviser
to be of comparable quality. The percentages are based on the dollar-weighted
average of credit ratings of all securities held by the Fund during the last
fiscal period computed on a monthly basis.

<TABLE>
<CAPTION>
Period Ended March 31, 1999
Unrated Securities of
Rated Securities Comparable Quality
(As a Percentage of (As a Percentage of
Rating Category Portfolio Value) Portfolio Value)
- ---------------------------------------------------------------------
<S> <C> <C>
AAA/Aaa % %
.....................................................................
AA/Aa % %
.....................................................................
A/A % %
.....................................................................
BBB/Baa % %
.....................................................................
BB/Ba % %
.....................................................................
B/B % %
.....................................................................
CCC/Caa % %
.....................................................................
CC/Ca % %
.....................................................................
C/C % %
.....................................................................
D % %
.....................................................................
Percentage of
Rated and
Unrated
Securities % %
.....................................................................
</TABLE>

The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those listed above.

SECURITIES OF FOREIGN ISSUERS

The Fund may invest up to 35% of its total assets in debt securities of similar
quality as the securities described above issued by foreign governments and
foreign corporations. Investments in securities issued by foreign corporations
generally will be limited to companies with at least three years of operations
in developed countries. Such securities may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in foreign securities present
certain risks not ordinarily associated with investments in securities of U.S.
issuers. These risks include fluctuations in foreign currency exchange rates,
political, economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), the
imposition of foreign exchange limitations (including currency blockage),
withholding taxes on dividend or interest payments or capital transactions or
other restrictions, higher transaction costs (including higher brokerage,
custodial and settlement costs and currency translation costs) and possible
difficulty in enforcing contractual obligations or taking judicial action. Also,
foreign securities may not be as liquid and may be more volatile than comparable
domestic securities.

In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.

Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets are not fully
invested or attractive investment opportunities are foregone.

Investments in securities of developing or emerging markets are subject to
greater risks than investments in securities of developed countries since
emerging

10
<PAGE> 13

markets tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed countries.

In addition to the increased risks of investing in foreign issuers, there are
often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.

Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets. In
addition, the Fund will incur costs in connection with conversions between
various currencies.

The risks of foreign investments should be considered carefully by an investor
in the Fund.

OTHER INVESTMENTS AND RISK FACTORS

The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result. The Fund may purchase and sell
derivative instruments such as exchange-listed and over-the-counter put and call
options on securities, financial futures, equity, fixed-income and interest rate
indices, and other financial instruments, purchase and sell financial futures
contracts and options thereon, enter into various interest rate transactions
such as swaps, caps, floors or collars, and enter into various currency
transactions such as currency forward contracts, currency futures contracts,
currency swaps, or options on currencies or currency futures. Collectively, all
of the above are referred to as "Strategic Transactions." The Fund generally
seeks to use Strategic Transactions as a risk management or hedging technique to
seek to protect against possible adverse changes in the market value of
securities held in or to be purchased for the Funds' portfolio, protect the
Fund's unrealized gains, facilitate the sale of certain securities for
investment purposes, protect against changes in currency exchange rates, manage
the effective maturity or duration of the Fund's portfolio, or establish
positions in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. The Fund may sell options on securities it owns
or has the right to acquire without additional payments in an amount up to 25%
of the Fund's total assets for non-hedging purposes.

Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instrument.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of such Strategic Transactions may result
in losses greater than if they had not been used, require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, limit the amount of appreciation the Fund can realize on
an investment, or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of the imposition of exchange controls, suspension of settlements or the
inability to deliver or receive a specified currency. The use of currency
transactions can result in the Fund incurring losses as a result of the
imposition of exchange controls, suspension of settlements or the inability to
deliver or receive a specified currency. Money paid by the Fund as premium and
money or other assets placed in margin accounts in connection with entering into
Strategic Transactions are not otherwise available to the Fund for investment
purposes.

A more complete discussion of Strategic Transactions and their risks is
contained in the Fund's Statement of Additional Information which can be
obtained by investors free of charge as described on the back cover of this
prospectus.

For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-

11
<PAGE> 14

dealers. Such transactions are subject to the risk of default by the other
party.

The Fund may purchase and sell securities on a "when-issued" and "delayed
delivery" basis. The Fund accrues no income on such securities until the Fund
actually takes delivery of such securities. These transactions are subject to
market fluctuation; the value of the securities at delivery may be more or less
than their purchase price. The yields generally available on comparable
securities when delivery occurs may be higher than yields on the securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. The Fund will engage in when-issued and
delayed delivery transactions for the purpose of acquiring securities consistent
with the Fund's investment objectives and policies and not for the purpose of
investment leverage.

In order to generate additional income, the Fund may lend its portfolio
securities in an amount up to 25% of its net assets to broker-dealers, banks or
other recognized institutional borrowers of securities. Such loans must be
callable at any time and the borrower at all times during the loan must maintain
cash or U.S. government securities as collateral equal in value to at least 100%
of the value of the securities loaned (including accrued interest). During the
time portfolio securities are on loan, the Fund receives any dividends or
interest paid on such securities and may invest the collateral itself and
receive the proceeds from such investment or receive an agreed-upon amount of
interest income from the borrower who has delivered the collateral. 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.

The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.

Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.

Although the Fund does not intend to engage in substantial short-term trading,
it may sell securities without regard to the length of time they have been held
in order to take advantage of new investment opportunities or when the Fund's
investment adviser believes the potential for income or capital appreciation has
lessened or otherwise. The Fund's portfolio turnover is shown under the heading
"Financial Highlights." The portfolio turnover rate may be expected to vary from
year to year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs, including brokerage commissions or dealer costs, and may
result in the realization of more short-term capital gains than if the Fund had
lower portfolio turnover. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.

TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in cash, higher-grade debt securities, securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and money
market instruments. Under normal market conditions, the potential for income or
capital appreciation on these securities will tend to be lower than the
potential for income or capital appreciation on other securities owned by the
Fund. The effect of taking such a defensive position may be that the Fund does
not achieve its investment objectives.

12
<PAGE> 15

which, in turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.

INVESTMENT ADVISORY SERVICES

THE ADVISER. Van Kampen Investment Advisory Corp. is the Fund's investment
adviser (the "Adviser" or "Advisory Corp."). The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Fund as follows:

<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- -----------------------------------------------
<S> <C>
First $500 million 0.75 of 1.00%
...............................................
Over $500 million 0.65 of 1.00%
...............................................
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 0.75% of the Fund's average daily net assets for the Fund's
fiscal period ended March 31, 1999.

Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment, provides administrative services, and permits its
officers and employees to serve without compensation as trustees of the Trust or
officers of the Fund if elected to such positions. The Fund pays all charges and
expenses of its day-to-day operations, including the compensation of trustees of
the Trust (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments), the charges and expenses of legal
counsel and independent accountants, distribution fees, service fees, custodian
fees, the costs of providing reports to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser.

From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

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 of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.

13
<PAGE> 16

PORTFOLIO MANAGEMENT. The Fund is managed by Robert J. Hickey, a Vice President
of the Adviser. Mr. Hickey has been primarily responsible for the day-to-day
management of the Fund's portfolio since March 1998. Mr. Hickey joined the
Adviser in 1989 and became Assistant Vice President in January 1993. Mr. Hickey
has been a Vice President of the Adviser and Asset Management since June 1995.

PURCHASE OF SHARES

GENERAL

The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.

Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.

Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan (described below) 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 offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.

14
<PAGE> 17

with other types of sales charge arrangements. Long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities Dealers, Inc.
("NASD"). The net income attributable to a class of shares and the dividends
payable on such class of shares will be reduced by the amount of the
distribution fees and other expenses associated with such class of shares. To
assist investors in comparing classes of shares, the tables under the heading
"Fees and Expenses of the Fund" provide a summary of sales charges and expenses
and an example of the sales charges and expenses applicable to each class of
shares.

The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents or
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."

Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.

The offering price for shares is based on the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers are priced
based on the date of receipt provided such order is transmitted to Investor
Services prior to Investor Services' close of business on such date. Orders
received by authorized dealers or transmitted to Investor Services after its
close of business are priced based on the date of the next computed net asset
value per share provided they are received by Investor Services prior to
Investor Services' close of business on such date. It is the responsibility of
authorized dealers to transmit orders received by them to Investor Services so
they will be received in a timely manner. Orders of less than $500 generally are
mailed by the authorized dealer and processed at the offering price next
calculated after receipt by Investor Services.

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.

Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 341-2911 or by writing to the Fund, c/o Van Kampen Investors Services
Inc., PO Box 418256, Kansas City, MO 64141-9256.

CLASS A SHARES

Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:

CLASS A SHARES

SALES CHARGE SCHEDULE

<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price.

15
<PAGE> 18

No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gains distributions.

The Fund may spend an aggregate amount up to 0.25% per year of the average daily
net assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and Service Plan. From such amount, the Fund may spend up to
0.25% per year of the Fund's average daily net assets attributable to the Class
A Shares pursuant to the Service Plan in connection with the ongoing provision
of services to holders of such shares by the Distributor and by brokers, dealers
or financial intermediaries and in connection with the maintenance of such
shareholders' accounts.

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

CLASS B SHARES

SALES CHARGE SCHEDULE

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- ------------------------------------------------
<S> <C>
First 4.00%
................................................
Second 3.75%
................................................
Third 3.50%
................................................
Fourth 2.50%
................................................
Fifth 1.50%
................................................
Sixth 1.00%
................................................
Seventh and After None
................................................
</TABLE>

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are aggregated and deemed to have been made on the last
day of the month.

In determining whether a contingent deferred sales charge 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 contingent deferred sales
charge and then of shares held the longest in the shareholder's account.

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

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital 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 purchase Class A
Shares.

16
<PAGE> 19

contingent deferred sales charge and then of shares held the longest in the
shareholder's account.

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. 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. The aggregate
distribution and service fees are currently 1.00% per year of the average daily
net assets attributable to Class C Shares of the Fund.

CONVERSION FEATURE

Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares 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 Class C Shares received on such shares, 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 of the Fund acquired
through the exchange privilege from another fund participating in the exchange
program is determined by reference to the fund from which such share was
originally purchased.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required minimum distributions from an individual retirement
account ("IRA") or certain other retirement plan distributions, (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 involuntarily
liquidate a shareholder's account as described under the heading "Redemption of
Shares." The contingent deferred sales charge 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. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Fund's Statement of Additional Information or contact your
authorized dealer.

QUANTITY DISCOUNTS

Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced sales charges. Investors, or their authorized
dealers, must notify the Fund at the time of the purchase order whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.

As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed

17
<PAGE> 20

by the Distributor as determined from time to time by the Fund's Board of
Trustees.

VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges in
connection with the unit investment trust reinvestment program and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.

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 quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.

18
<PAGE> 21

NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:

(1) Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.

(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21 years
of age when purchasing for any accounts they beneficially own, or, in the
case of any such financial institution, when purchasing for retirement plans
for such institution's employees; provided that such purchases are otherwise
permitted by such institutions.

(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.

(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.

(6) Beneficial owners of shares of Participating Funds held by a retirement plan
or held in a tax-advantaged retirement account who purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.

(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.

(8) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code and assets held by an employer
or trustee in connection with an eligible deferred compensation plan under
Section 457 of the Code. Such plans will qualify for purchases at net asset
value provided, for plans initially establishing accounts with the
Distributor in the Participating Funds after February 1, 1997, that (1) the
initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than
100 eligible employees. Such plans that have been established with a
Participating Fund or have received proposals from the Distributor prior to
February 1, 1997 based on net asset value purchase privileges previously in
effect will be qualified to purchase shares of the Participating Funds at
net asset value for accounts established on or before May 1, 1997. Section
403(b) and similar accounts for which Van Kampen Trust Company serves as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a commission
will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.

19
<PAGE> 22

(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the Fund
and Participating Funds, (iv) has a membership that the authorized dealer
can certify as to the group's members and (v) satisfies other uniform
criteria established by the Distributor for the purpose of realizing
economies of scale in distributing such shares. A qualified group does not
include one whose sole organizational nexus, for example, is that its
participants are credit card holders of the same institution, policy holders
of an insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
contingent deferred sales charge of 1.00% in the event of redemption within
one year of purchase, and a commission will be paid to authorized dealers
who initiate and are responsible for such sales to each individual as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described 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.

REDEMPTION OF
SHARES

Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.

Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
acceptance by Investor Services 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. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the redemption until it confirms the purchase check
has cleared, which may take up to 15 days. A taxable gain or loss will be
recognized by the shareholder upon redemption of shares.

WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 418256, Kansas City, MO 64141-9256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,

20
<PAGE> 23

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. In the case of shareholders holding
certificates, the certificates for the shares being redeemed properly endorsed
for transfer must accompany the redemption request. In the event the redemption
is requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 120 days must accompany the redemption request. IRA
redemption requests should be sent to the IRA custodian to be forwarded to
Investor Services. Contact the IRA custodian for further information.

In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.

AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.

21
<PAGE> 24

be given an opportunity to purchase the required value of additional shares at
the next determined net asset value without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.

DISTRIBUTIONS FROM THE FUND

In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions. Investors will be entitled to begin receiving
dividends on their shares on the business day after Investor Services receives
payment for such shares. However, shares become entitled to dividends on the day
Investor Services receives payment for the shares either through a fed wire or
NSCC settlement. Shares remain entitled to dividends through the day such shares
are processed for payment on redemption.

DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Trustees is to distribute all or substantially all of this income, less
expenses, monthly as dividends to shareholders. Dividends are automatically
applied to purchase additional shares of the Fund at the next determined net
asset value unless the shareholder instructs otherwise.

The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.

CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. As in the
case of dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value unless the shareholder
instructs otherwise.

SHAREHOLDER SERVICES

Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital 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 Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.

CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a nonescrow status may
appoint Investor Services 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 Investor Services. 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

22
<PAGE> 25

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 Share account by Investor Services at the next determined
net asset value per share. Check writing redemptions represent the sale of Class
A Shares. Any gain or loss realized on the redemption of shares is a taxable
event.

Checks will not be honored for redemption of Class A Shares held less than
15-calendar days, unless such Class A Shares have been paid for by bank wire.
Any Class A Shares for which there are outstanding certificates may not be
redeemed by check. If the amount of the check is greater than the proceeds of
all uncertificated shares held in the shareholder's account, the check will be
returned and the shareholder may be subject to additional charges.

A shareholder may not liquidate the entire account by means of a check. The
check writing privilege may be terminated or suspended at any time by the Fund
or by the Bank. Retirement plans and accounts that are subject to backup
withholding are not eligible for the privilege.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.

To be eligible for exchanges, shares of the Fund must have been registered in
the shareholder's name for at least 30 days prior to an exchange. Shares of the
Fund registered in a shareholder's name for less than 30 days may only be
exchanged upon receipt of prior approval of the Adviser. It is the policy of the
Adviser under normal circumstances, not to approve such requests.

When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.

Exchanges of shares are sales 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 Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification) and
authorized dealer of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, however, an exchanging shareholder must submit a
specific 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.

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<PAGE> 26

For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.

Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

A prospectus of any of these Participating 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.

INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services 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, Investor Services may
rely on the instructions of any one owner.

FEDERAL INCOME TAXATION

Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) 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 (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Such capital gains dividends may be taxed at
different rates depending on how long the Fund held the securities. The Fund
expects that its distributions will consist of ordinary income and capital gains
dividends. Distributions in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder (assuming
such shares are held as a capital asset). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or December, payable to shareholders of record on a specified date in
such month and paid during January of the following year will be treated as
having been distributed by the Fund and received by the shareholders on the
December 31st prior to the date of payment. The Fund will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.

The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.

24
<PAGE> 27

The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.

Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.

The Fund intends to qualify as a regulated investment company under the federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gains net income, then the Fund will be subject to
a 4% excise tax on the undistributed amounts.

The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, exchanging or selling
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.

25
<PAGE> 28

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
performance for the periods indicated. Certain information reflects financial
results for a single Fund Share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by KPMG LLP, independent accountants, whose report, along with the
financial statements, is included thereon appears in the Statement of Additional
Information and may be obtained by shareholders without charge by calling the
telephone number on the back cover of this prospectus. This information should
be read in conjunction with the financial statements and notes thereto included
in the Statement of Additional Information.

<TABLE>
<CAPTION>
Class A Shares Class B Shares

Nine Nine
Months Months
Ended Ended
March 31, Year Ended June 30, March 31, Year Ended June 30,
1999 1998 1997 1996 1995 1994 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $9.854 $9.493 $9.398 $9.643 $10.380 $9.855 $9.497
------- ------ ------- ------- ------- ------- ------- ------ -------
Net Investment Income.............. 0.857 0.857 0.878 0.844 0.908 0.782 0.777
Net Realized and Unrealized
Gain/Loss........................ 0.037 0.384 0.147 (0.099) (0.595) 0.036 0.388
------- ------ ------- ------- ------- ------- ------- ------ -------
Total from Investment Operations..... 0.894 1.241 1.025 0.745 0.313 0.818 1.166
------- ------ ------- ------- ------- ------- ------- ------ -------
Less:
Distributions from and in Excess of
Net Investment Income............ 0.855 0.865 0.880 0.815 0.950 0.783 0.794
Distributions from Net Realized
Gain on Investments.............. 0.000 0.000 0.000 0.000 0.000
Return of Capital Distributions.... 0.000 0.015 0.050 0.175 0.100 0.000 0.014
------- ------ ------- ------- ------- ------- ------- ------ -------

Total Distributions.................. 0.855 0.880 0.930 0.990 1.050 0.783 0.808
------- ------ ------- ------- ------- ------- ------- ------ -------

Net Asset Value, End of the Period... $9.893 $9.854 $9.493 $9.398 $9.643 $9.890 $9.855
======= ====== ======= ======= ======= ======= ======= ====== =======

Total Return* (b).................... 9.36% 13.60% 11.26% 8.50% 2.92% 9.28% 12.64%
Net Assets at End of the Period (In
millions).......................... $280.6 $288.0 $271.1 $253.3 $260.7 $145.0 $128.7
Ratio of Expenses to Average Net
Assets*............................ 1.14% 1.17% 1.31% 1.31% 1.32% 1.91% 1.93%
Ratio of Net Investment Income to
Average Net Assets*................ 8.61% 8.83% 9.16% 9.13% 8.85% 7.84% 8.03%
Portfolio Turnover................... 154% 125% 102% 152% 203% 154% 125%

* If certain expenses had not been
waived or reimbursed by the
Adviser, total return would have
been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets........................... 1.24% 1.26% 1.31% N/A N/A 2.01% 2.02%
Ratio of Net Investment Income to
Average Net Assets............... 8.51% 8.73% 9.15% N/A N/A 7.74% 7.94%

<CAPTION>
Class B Shares

Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $9.398 $9.638 $10.382
-------- -------- -------
Net Investment Income.............. 0.797 0.788 0.889
Net Realized and Unrealized
Gain/Loss........................ 0.160 (0.115) (0.665)
-------- -------- -------
Total from Investment Operations..... 0.957 0.673 0.224
-------- -------- -------
Less:
Distributions from and in Excess of
Net Investment Income............ 0.812 0.751 0.877
Distributions from Net Realized
Gain on Investments..............
Return of Capital Distributions.... 0.046 0.162 0.091
-------- -------- -------
Total Distributions.................. 0.858 0.913 0.968
-------- -------- -------
Net Asset Value, End of the Period... $9.497 $9.398 $9.638
======== ======== =======
Total Return* (b).................... 10.55% 7.61% 2.11%
Net Assets at End of the Period (In
millions).......................... $97.1 $55.9 $33.2
Ratio of Expenses to Average Net
Assets*............................ 2.07% 2.04% 2.13%
Ratio of Net Investment Income to
Average Net Assets*................ 8.39% 8.35% 7.94%
Portfolio Turnover................... 102% 152% 203%
* If certain expenses had not been
waived or reimbursed by the
Adviser, total return would have
been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets........................... 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets............... 8.38% N/A N/A

<CAPTION>
Class C Shares
August 13,
1993
Nine (Commencement
Months of
Ended Distribution) to
March 31, Year Ended June 30, June 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $9.851 $9.495 $9.396 $9.643 $10.340
------- ------ ------- -------- -------- -------
Net Investment Income.............. 0.780 0.780 0.828 0.745 0.761
Net Realized and Unrealized
Gain/Loss........................ 0.036 0.384 0.129 (0.079) (0.605)
------- ------ ------- -------- -------- -------
Total from Investment Operations..... 0.816 1.164 0.957 0.666 0.156
------- ------ ------- -------- -------- -------
Less:
Distributions from and in Excess of
Net Investment Income............ 0.783 0.794 0.812 0.751 0.763
Distributions from Net Realized
Gain on Investments..............
Return of Capital Distributions.... 0.000 0.014 0.046 0.162 0.090
------- ------ ------- -------- -------- -------
Total Distributions.................. 0.783 0.808 0.858 0.913 0.853
------- ------ ------- -------- -------- -------
Net Asset Value, End of the Period... $9.884 $9.851 $9.495 $9.396 $9.643
======= ====== ======= ======== ======== =======
Total Return* (b).................... 8.47% 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of the Period (In
millions).......................... $11.5 $8.1 $7.0 $2.0 $2.2
Ratio of Expenses to Average Net
Assets*............................ 1.91% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets*................ 7.83% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover................... 154% 125% 102% 152% 203%**
* If certain expenses had not been
waived or reimbursed by the
Adviser, total return would have
been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets........................... 2.01% 2.03% 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets............... 7.73% 7.99% 8.38% N/A N/A
</TABLE>

** Non-annualized

(a) Based on average 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.

N/A = Not Applicable

See Financial Statements and Notes thereto

26
<PAGE> 29

APPENDIX -- DESCRIPTION

OF SECURITIES RATINGS

STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:

A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:

2. Nature of and provisions of the obligation:

3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.

1. LONG-TERM DEBT -- INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.

A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.

BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.

CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

A- 1

<PAGE> 30

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The 'D' rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.

D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.

A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on

A- 2

<PAGE> 31

current information furnished to S&P by the issuer or obtained from other
sources it considers reliable. S&P does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.

3. PREFERRED STOCK

A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.

The preferred stock ratings are based on the following considerations:

i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.

ii. Nature of, and provisions of, the issuer.

iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.

AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".

A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.

BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.

"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.

C: A preferred stock rated "C" is a nonpaying issue.

D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.

NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings from "AA" to "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's)

A- 3

<PAGE> 32

rating symbols and their meanings (as published by Moody's Investors Service)
follows:

1. LONG-TERM DEBT

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than the Aaa securities.

A: Bonds which are rated a possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published in
Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

2. SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.

A- 4

<PAGE> 33

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

- -- Leading market positions in well-established industries.

- -- High rates of return on funds employed.

- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- -- Broad margins is earnings coverage of fixed financial charges and high
internal cash generation.

- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

AAA: As issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.

BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.

C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.

A- 5

<PAGE> 34

FOR MORE INFORMATION

EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday

DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666

TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833

FUND INFO(R)
For automated telephone services, call (800) 847-2424

WEB SITE
www.vankampen.com

VAN KAMPEN HIGH YIELD FUND

1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Investment Adviser

VAN KAMPEN INVESTMENT ADVISORY CORP.

1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Distributor

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Transfer Agent

VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256

Attn: Van Kampen High Yield Fund

Custodian

STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713

Attn: Van Kampen High Yield Fund

Legal Counsel

SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG LLP

303 East Wacker Drive

Chicago, IL 60601
<PAGE> 35

VAN KAMPEN

HIGH YIELD FUND

PROSPECTUS

, 1999

A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.

You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.

You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.

Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.

[VAN KAMPEN FUNDS LOGO]

Investment Company Act File No. 811-4629. HYF PRO 7/99

<PAGE> 36

[VAN KAMPEN FUNDS LOGO]

SUBJECT TO COMPLETION --

DATED MAY 28, 1999

VAN KAMPEN

SHORT-TERM GLOBAL

INCOME FUND

Van Kampen Short-Term Global Income Fund is a
mutual fund with an investment objective to
seek a high level of current income,
consistent with prudent investment risk. The
Fund's management seeks to achieve the
investment objective by investing primarily in
a global portfolio of investment grade quality
debt securities denominated in various
currencies and multi-national currency units
and by maintaining a dollar-weighted average
portfolio duration of not more than three
years.

Shares of the Fund have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulators, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to state
otherwise.

This prospectus is dated , 1999.

<PAGE> 37

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 6
Investment Objective and Policies................. 7
Investment Advisory Services...................... 16
Purchase of Shares................................ 16
Redemption of Shares.............................. 23
Distributions from the Fund....................... 25
Shareholder Services.............................. 25
Federal Income Taxation........................... 27
Financial Highlights.............................. 29
Appendix -- Description of Securities Ratings..... A-1
</TABLE>

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE> 38

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to seek a high level of
current income, consistent with prudent investment risk. There can be no
assurance that the Fund will achieve its investment objective.

INVESTMENT STRATEGIES

The Fund's management seeks to achieve the investment objective by investing
primarily in a global portfolio of investment grade quality debt securities
denominated in various currencies and multi-national currency units and by
maintaining a dollar-weighted average portfolio duration of not more than three
years. Under normal market conditions, the Fund invests at least 80% of its net
assets in investment grade quality debt securities. Investment grade quality
securities include securities rated at the time of purchase BBB or higher by
Standard & Poor's ("S&P") or rated Baa or higher by Moody's Investors Services,
Inc. ("Moody's") or comparably rated by another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, securities judged by
the Fund's investment adviser to be of comparable quality. The Fund may invest
up to 20% of its net assets in lower-grade debt securities. Securities rated BB
or lower by S&P or rated Ba or lower by Moody's or unrated securities of
comparable quality are commonly referred to as "junk bonds," and involve special
risks as compared to investments in higher-grade securities. Under normal market
conditions, the Fund invests at least 65% of its total assets in securities of
issuers located in at least three different countries (including the U.S.). The
Fund's management allocates portfolio assets and adjusts the Fund's exposure to
each currency based on its assessment of the relative yield and appreciation
potential of such securities and the relationship of a country's currency to the
U.S. dollar. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by the Fund's management in
determining whether to increase or decrease the emphasis placed upon a
particular sector within the Fund's investment portfolio. The Fund may invest in
mortgage-backed and asset-backed securities, stripped securities and variable
and floating rate securities. The Fund may purchase and sell securities on a
when-issued or delayed delivery basis. The Fund may purchase or sell certain
derivative instruments (such as options, futures and options on futures, and
interest rate swaps or other interest rate-related transactions) for various
risk management and hedging purposes, including seeking to reduce or eliminate
foreign currency exchange risks associated with securities denominated in
non-U.S. dollar currencies.

INVESTMENT RISKS

An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund.

MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of debt securities tend to fall as
interest rates rise, and such declines tend to be greater among debt securities
with longer durations. Although the Fund has no policy limiting the maturities
of its investments, the Fund's investment adviser seeks to maintain a
dollar-weighted average portfolio duration of not more than three years. This
means the Fund will be subject to less market risk than a fund investing in
solely longer-term securities. Foreign markets may, but often do not, move in
tandem with changes in U.S. markets, and foreign markets may have more price
volatility than U.S. markets. Investments in when-issued and delayed delivery
transactions are subject to changes in market conditions from the time of the
commitment until settlement. This may adversely affect the prices or yields of
the securities being purchased, as well as any portfolio securities held for
payment of such commitments. The greater the Fund's outstanding commitments for
these securities, the greater the Fund's exposure to market price fluctuation.
Market risk is often greater among certain types of debt securities, such as
mortgage-backed securities or stripped securities. As interest rates change,
these securities often fluctuate more in price than traditional debt securities
and may subject the Fund to greater market risk than a fund that does not own
these types of securities.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Under normal market conditions, the Fund invests at
least 80% of its net assets in investment grade securities and the Fund may
invest up to 20% of its assets in securities below investment grade quality.
Therefore the Fund is subject to a higher level of credit risk than a fund that
buys only investment grade securities. The credit quality of "noninvestment
grade" securities is considered

3
<PAGE> 39

speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest and principal. The credit risks and market
prices of lower-grade securities generally are more sensitive to negative issuer
developments, such as a decline in profits, or adverse economic conditions, such
as a recession, than are higher-grade securities.

FOREIGN RISKS. Because the Fund will own securities from foreign issuers, it
will be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues. The risks of investing in developing or emerging
markets (in which the Fund may invest) are greater than the risks associated
with foreign investments generally including greater political uncertainties, an
economy's dependence on international development assistance, currency transfer
restrictions, and greater delays and disruptions in settlement transactions.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, and forward contracts are
examples of derivatives. Such transactions involve risks different from the
direct investment in underlying securities such as imperfect correlation between
the value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may incur
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.

NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.

MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be appropriate
for investors who:

- - Seek a higher yield than a money market fund and less fluctuation in value
than a longer-term global bond fund.

- - Are willing to take on the increased risks associated with investing in
foreign securities.

- - Wish to add to their personal investment portfolios a fund that invests
primarily in short-term debt securities of issuers in the U.S. and foreign
countries.

An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past eight calendar years prior to
the date of this prospectus. Sales loads are not reflected in this chart. If
these sales loads had been included, the returns shown below would have

4
<PAGE> 40

been lower. Remember that the past performance of the Fund is not indicative of
its future performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1991' 9.64
'1992' 5.26
'1993' 7.26
'1994' -7.38
'1995' 6.57
'1996' 6.70
'1997' 4.68
'1998' 2.14
</TABLE>

The Fund commenced investment operations on September 28, 1990. The return for
Class A Shares from September 28, 1990 to December 31, 1990 was 0.87%.

During the eight-year period shown in the bar chart, the highest quarterly
return was 4.50% (for the quarter ended June 30, 1993) and the lowest quarterly
return was -4.85% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with two broad-based market
indices that the Fund's management believes are applicable benchmarks for the
Fund: the J.P. Morgan Short Term Global Index and the J.P. Morgan 3-Month U.S.
LIBOR Return Index . The Fund's performance figures include the maximum sales
charges paid by investors. The indices' performance figures do not include
commissions or sale charges that would be paid by investors purchasing the
securities represented by the indices. Average annual total returns are shown
for the periods ended December 31, 1998 (the most recently completed calendar
year prior to the date of this prospectus). Remember that the past performance
of the Fund is not indicative of its future performance.

J.P. Morgan
Short-Term Global
Index %(1)

J.P. Morgan
3-Month U.S.
LIBOR
Return Index
.......................................................
Van Kampen
Short-Term Global
Income Fund --
Class B Shares -1.55% 1.62% 3.21%(2)

J.P. Morgan
Short-Term Global
Index % % %

J.P. Morgan
3-Month U.S.
LIBOR
Return Index
.......................................................
Van Kampen
Short-Term Global
Income Fund --
Class C Shares 0.38% 1.59% 1.72%(3)

J.P. Morgan
Short-Term Global
Index % % %

J.P. Morgan
3-Month U.S.
LIBOR
Return Index
.......................................................
</TABLE>

Inception date: (1) 9/28/90, (2) 7/22/91, (3) 8/13/93, .

The current yield for the thirty-day period ended March 31, 1999 is 6.14% for
Class A Shares, 5.59% for Class B Shares and 5.59% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.

5
<PAGE> 41

FEES AND EXPENSES
OF THE FUND

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

(fees paid directly from your investment)

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a 3.25%(1) None None
percentage of
offering price)
............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption None(2) 3.00%(3) 1.00%(4)
proceeds)
............................................................
Maximum sales charge
(load) imposed on
reinvested dividends
(as a percentage of None None None
offering price)
............................................................
Redemption fees (as a
percentage of amount None None None
redeemed)
............................................................
Exchange fee None None None
............................................................
</TABLE>

(1) Reduced for purchases of $25,000 and over. See "Purchase of Shares -- Class
A Shares."

(3) The maximum deferred sales charge is 3.00% in the first year after purchase
and declining thereafter as follows:

Year 1-3.00%

Year 2-2.00%

Year 3-1.00%

OPERATING EXPENSES

(expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55%
..........................................................
Distribution and/or
Service (12b-1) 0.25% 1.00%(2) 1.00%(2)
Fees(1)
..........................................................
Other Expenses 0.76% 0.76% 0.78%
..........................................................
Total Annual Fund
Operating Expenses 1.56% 2.31% 2.33%
..........................................................
</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 "Purchase of Shares."

(2) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.

Example:

The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $479 $802 $1,147 $2,121
.......................................................................
Class B Shares $534 $821 $1,235 $2,458*
.......................................................................
Class C Shares $336 $727 $1,245 $2,666
.......................................................................
</TABLE>

6
<PAGE> 42

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $479 $802 $1,147 $2,121
.......................................................................
Class B Shares $234 $721 $1,235 $2,458*
.......................................................................
Class C Shares $236 $721 $1,245 $2,666
.......................................................................
</TABLE>

* Based on conversion to Class A Shares after eight years.

INVESTMENT OBJECTIVE
AND POLICIES

The Fund's investment objective is to seek a high level of current income,
consistent with prudent investment risk. The Fund's investment objective is a
fundamental policy and may not be changed without approval of the holders of a
majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). There are risks
inherent in all investments in securities; accordingly there can be no assurance
that the Fund will achieve its investment objective.

The Fund's investment adviser seeks to achieve the investment objective by
investing primarily in a global portfolio of investment grade quality debt
securities denominated in various currencies and multi-national currency units
and by maintaining a dollar-weighted average portfolio duration of not more than
three years. Under normal market conditions, the Fund invests at least 80% of
its net assets in investment grade quality debt securities. The Fund may invest
up to 20% of its net assets in lower-grade debt securities, commonly referred to
as "junk bonds," which involve special risks as compared to investments in
higher-grade securities. Under normal market conditions, the Fund invests at
least 65% of its total assets in securities of issuers located in at least three
different countries (including the U.S.). The Fund is designed for investors who
seek a higher yield than a money market fund and less fluctuation in net asset
value than a longer-term global bond fund. Investment grade debt securities and
securities with shorter duration generally have lower yields than debt
securities of lower quality and with longer maturities.

The Fund's investment adviser actively manages the Fund's portfolio, allocating
portfolio assets among various types of U.S. and foreign debt securities and
adjusting the Fund's exposure to each currency based on the investment adviser's
perception of the most favorable markets and issuers. In this regard, the
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield and appreciation potential of such
securities and the relationship of a country's currency to the U.S. dollar.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Fund's investment adviser in determining to
increase or decrease the emphasis placed upon a particular sector within the
Fund's investment portfolio.

Debt securities in which the Fund invests include obligations issued or
guaranteed by the U.S. or foreign governments or supranational organizations or
their respective agencies, authorities or instrumentalities, debt securities of
U.S. and foreign corporations, certificates of deposit, bankers' acceptances and
other obligations of banks having total assets of at least $500 million or
commercial paper. The Fund's investments in U.S. government securities may
include U.S. Treasury securities and securities issued or guaranteed by agencies
or instrumentalities of the U.S. government, such as collateralized mortgage
obligations and other mortgage-related securities. The Fund's foreign
investments may include securities that are issued by the government of one
nation but denominated in the currency of another nation (or in a multinational
currency unit). The Fund may invest in debt securities issued by certain
"supranational" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. An example of a
supranational entity is the International Bank for Reconstruction and
Development (commonly referred to as the "World Bank"). A more complete
description of supranational entities in which the Fund may invest is contained
in the Fund's Statement of Additional Information. The Fund generally invests in
debt securities denominated in multi-national currency units and in currencies
of countries whose governments are considered stable by the Fund's investment
adviser and whose currency is convertible into U.S. dollars. The Fund may,
however, invest a portion of its assets in currencies of emerging markets
countries. The Fund will not invest

7
<PAGE> 43

more than 25% of its total assets in debt securities denominated in a single
currency other than the U.S. dollar.

The value of debt securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, debt security prices
generally fall; if interest rates fall, debt security prices generally rise.
Shorter-term securities are generally less sensitive to interest rate changes
than longer-term securities; thus, for a given change in interest rates, the
market prices of shorter-maturity debt securities generally fluctuate less than
the market prices of longer-maturity debt securities. Debt securities with
shorter maturities generally offer lesser yields than debt securities with
longer maturities assuming all other factors, including credit quality, being
equal. In pursuing its investment objective, the Fund seeks to minimize
fluctuations in net asset value as a result of changes in market rates of
interest by investing primarily in shorter-term debt securities. While the Fund
has no fundamental policy limiting the maturities of the individual debt
securities in which it may invest, the Fund's investment adviser seeks to
maintain a dollar-weighted portfolio duration of not more than three years.
Duration is a measure of the expected life of a debt security that was developed
as an alternative to the concept of "term to maturity." Duration incorporates a
debt security's yield, coupon interest payments, final maturity and call
features into one measure. A duration calculation looks at the present value of
a security's entire payment stream whereas term to maturity is based solely on
the date of a security's final principal repayment. Certain debt securities are
subject to additional market risks, see "Additional Information Regarding
Certain Debt Securities" below.

Credit risk refers to an issuer's ability to make timely payments of interest
and principal. To seek to minimize credit risk associated with debt securities,
the Fund invests at least 80% of its net assets in investment grade quality debt
securities. Investment grade quality securities are securities rated at the time
of investment BBB or higher by S&P or rated Baa or higher by Moody's or
comparably rated by another NRSRO or, if unrated, considered by the Fund's
investment adviser to be of comparable quality. Credit quality at the time of
purchase determines which securities may be acquired, and a subsequent reduction
in ratings does not require the Fund to dispose of a security. Securities rated
BBB by S&P or Baa by Moody's are considered to be medium-grade obligations which
possess speculative characteristics so that changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher-rated securities. The
ratings assigned by the ratings agencies represent their opinions of the quality
of the debt securities they undertake to rate, but not the market value risk of
such securities. It should be emphasized that ratings are general and are not
absolute standards of quality. The Fund may invest up to 20% of its net assets
in lower-grade debt securities which involve, among other things, greater credit
risk, see "Additional Information Regarding Certain Debt Securities" below. For
further description of securities ratings, see the appendix to this prospectus.

As a global fund, the Fund will invest in securities of U.S. and foreign
issuers. Under normal circumstances, the Fund invests at least 65% of its total
assets in securities of issuers located in at least three different countries,
one of which may be the U.S. Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not typically
involved in domestic investment. Since the Fund may invest in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the value of investments in the
portfolio and accrued income thereon. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation, and other factors. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Thus, the Fund's net asset values may fluctuate as a result of changes in
foreign currency exchange rates independent of fluctuations in market rates of
interest. The Fund may engage in various foreign currency transactions (such as
transactions in instruments such as forward foreign currency contracts, options
on foreign currencies, foreign currency swap agreements, financial futures
contracts and options thereon) for risk management or hedging purposes to seek
to minimize adverse foreign currency exchange fluctuations. There can, however,
be no assurance

8
<PAGE> 44

that the Fund will not be adversely affected by fluctuations in foreign currency
exchange rates, and such risk management or hedging transactions also entail
risks. See also "Risk of Investing in Securities of Foreign Issuers" and "Other
Investments and Risk Factors" and the Fund's Statement of Additional
Information.

RISKS OF INVESTING IN

SECURITIES OF FOREIGN ISSUERS

The Fund will invest in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contracted
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.

In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive auditing, accounting and financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U. S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.

Investments in securities of developing or emerging markets are subject to
greater risks than investments in securities of developed markets since emerging
markets tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed countries.

The Fund's foreign currency exchange transactions may be conducted on a spot
basis (that is, cash basis) at the spot rate for purchasing or selling currency
prevailing in the foreign currency exchange market. The Fund purchases and sells
foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund also may
enter into contracts with banks, brokers or dealers to purchase or sell foreign
currencies at a future date ("forward contracts"). A foreign currency forward
contract is a negotiated agreement between the contracting parties to exchange a
specified amount of currency at a specified future time at a specified rate. The
rate can

9
<PAGE> 45

be higher or lower than the spot rate between the currencies that are the
subject of the contract.

The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency futures contract for such
amount. Such strategies may be employed before the Fund purchases a foreign
security traded in the currency which the Fund anticipates acquiring or between
the date the foreign security is purchased or sold and the date on which payment
therefor is made or received. Seeking to protect against a change in the value
of a foreign currency in the foregoing manner does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should move in the direction
opposite to the position taken. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not entered
into such contracts.

The risks of foreign investments should be considered carefully by an investor
in the Fund.

ADDITIONAL INFORMATION REGARDING

CERTAIN DEBT SECURITIES

The Fund may invest in certain debt securities that involve additional or
special risks to those described above.

LOWER-GRADE DEBT SECURITIES. Under normal market conditions, the Fund may invest
up to 20% of its net assets in securities below investment grade. Such
lower-grade debt securities are securities rated at the time of purchase BB or
lower S&P or rated Ba or lower by Moody's or comparably rated by another NRSRO
or, if unrated, believed by the Fund's investment adviser to be of comparable
quality. Such lower grade securities are commonly referred to as "junk bonds"
and involve special risks as compared to investments in higher-grade securities.
Lower-grade debt securities 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 greater risks,
such as greater credit risk, greater market risk and volatility, greater
liquidity concerns and potentially greater manager risk. 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 in the lowest of the rating
categories and that are in default in the payment of interest or repayment of
principal. For a description of security's ratings, see the appendix to this
prospectus.

Lower-grade securities are more susceptible to nonpayment of interest and
principal and default than higher-grade securities. Adverse changes in the
economy or the individual issuer often have a more significant impact on the
ability of lower-grade issuers to make payments, meet projected goals or obtain
additional financing. When an issuer of such securities is in financial
difficulties, the Fund may incur additional expenditures or invest additional
assets in an effort to obtain partial or full recovery on amounts due. While all
debt securities fluctuate inversely with changes in interest rates, the prices
of lower-grade securities generally are less sensitive to changes in interest
rates and are more sensitive to real or perceived general adverse economic
changes or specific issuer developments. A significant increase in market
interest rates or general economic developments could severely disrupt the
market for such securities and the market values of such securities. Such
securities also often experience more volatility in prices than higher-grade
securities. Lack of liquidity in a security makes sale of the security more
difficult in a timely manner, at least without price concessions. The market for
lower-grade securities may have less available information available, further
complicating evaluations and valuations of such securities and placing more
emphasis on the investment adviser's experience, judgment and analysis than
other securities.

10
<PAGE> 46

securities held by the Fund during the fiscal period computed on a monthly
basis.

<TABLE>
<CAPTION>
Period Ended March 31, 1999
Unrated Securities of
Rated Securities Comparable Quality
(As A Percentage of (As A Percentage of
Rating Category Portfolio Value) Portfolio Value)
- ---------------------------------------------------------------------
<S> <C> <C>
AAA/Aaa % %
.....................................................................
AA/Aa % %
.....................................................................
A/A % %
.....................................................................
BBB/Baa % %
.....................................................................
BB/Ba % %
.....................................................................
B/B % %
.....................................................................
CCC/Caa % %
.....................................................................
CC/Ca % %
.....................................................................
C/C % %
.....................................................................
D % %
.....................................................................
Percentage of
Rated and
Unrated
Securities % %
.....................................................................
</TABLE>

The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those set forth above. For further information
regarding investing in lower-grade securities, see the Fund's Statement of
Additional Information.

INDEXED COMMERCIAL PAPER OR CERTIFICATES OF DEPOSIT. The Fund may invest in
commercial paper and certificates of deposit which are indexed to certain
specific foreign currency exchange rates. The principal amount on such
securities is adjusted at maturity to reflect fluctuations in the exchange rate
between two currencies while the obligation is outstanding. Such investments
entail the risk of loss of principal, however, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the Fund to
hedge (or cross-hedge) against a decline in the U.S. dollar, while providing an
attractive money market rate of return. The Fund will purchase such obligations
for hedging purposes only, not for speculation. The Fund currently maintains a
segregated account containing cash or liquid securities having a value equal to
the aggregate principal amount of outstanding commercial paper and certificates
of deposit of this type.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed and asset-backed securities. Mortgage-backed securities 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,
like traditional debt securities, tend to decline in value as interest rates
rise. Mortgage-back securities are often more susceptible than traditional debt
securities to further price declines in periods of rising interest rates because
of extension risk (i.e. rising interest rates could cause property owners to
prepay their mortgages more slowly than expected when the security was purchased
by the Fund which may further reduce the market value of such security and
lengthen the duration of the security). In addition, mortgage-backed securities
tend to benefit less than traditional debt securities when interest rates
decline because of prepayment risk (i.e. underlying mortgages often get prepaid
faster than expected in periods of declining interests rates).

Asset-backed securities have structural characteristics similar to
mortgage-backed securities, but have underlying assets such as automobile and
credit card receivables and home equity loans. Asset-backed securities generally
do not have the benefit of a security interest in such collateral like
mortgage-backed securities. Although the assets underlying asset-backed
securities generally are of a shorter maturity than mortgage loans and
historically have been less likely to experience substantial prepayments, no
assurance can be given as to the actual maturity of an asset-backed security
because prepayments of principal may be made at any time.

The Fund may invest in REMICs and CMOs. REMICs are private entities formed for
the purpose of holding a fixed pool of mortgages secured by an interest in real
property. CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities held under an indenture issued by financial institutions
or other mortgage lenders or issued or guaranteed by agencies or
instrumentalities of the U.S. government. REMICs and CMOs generally 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. Such
securities are subject to market risk, prepayment risk and extension risk.
Certain of these

11
<PAGE> 47

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).

Additional information regarding, mortgage-backed and asset-backed Securities,
REMICs and CMOs is contained in the Fund's Statement of Additional Information.

STRIPPED INCOME SECURITIES. Stripped income securities are derivative
obligations representing an interest in all or a portion of the interest or
principal components of an underlying security or pool of securities or other
assets. The Fund may invest in stripped income securities issued by agencies or
instrumentalities of the U.S. government or by private originators, including
stripped mortgage-backed related securities. Such stripped securities are often
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of underlying 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 yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying assets, and a rapid rate of principal payments may have a
material adverse effect on such security's yield to maturity. If the underlying
assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. PO
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. Furthermore, if the underlying assets experience
slower than anticipated prepayments of principal, the yield of POs could be
materially adversely affected. The market values of IOs and POs are subject to
greater risk of fluctuation in response to changes in market rates of interest
than many other types of government securities and, to the extent the Fund
invests in IOs and POs, such investments increase the risk of fluctuations in
the net asset value of the Fund. Although the market for stripped securities 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.

VARIABLE AND FLOATING RATE SECURITIES. Debt securities in which the Fund invests
may provide for variable or floating rate interest or dividend payments.
Variable or floating rate securities bear rates of interest that are adjusted
periodically according to formulae intended to reflect market rates of interest.
Variable or floating rate securities allow the Fund to participate in increase
in interest rate through upward adjustments of the coupon rates on such
securities. However, during periods of increasing interest rates, changes in the
coupon rates may lag the change in market rates or may have limits on the
maximum increase in coupon rates. Alternative, during period of declining
interest rates, the coupon rates on such securities readjust downward resulting
in lower yield to the Fund. The Fund also may invest in derivative 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, or in securities that pay a rate of interest
determined by applying a multiple to the variable rate. Investment in such
securities involve special risks as compared to a fixed rate security. The
extent of increases and decreases in the value of derivative variable rate
securities and the corresponding change to the net asset value of the Fund in
response to 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. The
markets for such securities may be less developed and have less liquidity than
the markets for conventional securities.

BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are typically from a
debtor nation restructuring outstanding external commercial bank indebtedness.
Brady Bonds generally are based on issuers with a history of defaults with
respect to commercial bank loans and therefore are often viewed as speculative.
A more complete description of Brady Bonds is contained in the Fund's Statement
of Additional Information.

12
<PAGE> 48

an entity of debt securities (such as mortgages, bank loans or Brady Bonds) and
the issuance by that entity of one or more classes of securities, backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued securities to
create different investment characteristics such as varying maturities, payment
priorities and interest rate provisions.

OTHER INVESTMENT PRACTICES

AND RISK FACTORS

WHEN-ISSUED AND DELAYED DELIVERY. The Fund may purchase and sell securities on a
"when-issued" and "delayed delivery" basis. The Fund accrues no income on such
securities until the Fund actually takes delivery of such securities. These
transactions are subject to market fluctuation; the value of the securities at
delivery may be more or less than their purchase price. The yields generally
available on comparable securities when delivery occurs may be higher than
yields on the securities obtained pursuant to such transactions. Because the
Fund relies on the buyer or seller to consummate the transaction, failure by the
other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. The
Fund will engage in when-issued and delayed delivery transactions for the
purpose of acquiring securities consistent with the Fund's investment objective
and policies and not for the purpose of investment leverage.

STRATEGIC TRANSACTIONS. The Fund may, but is not required to, use various
investment strategic transactions described below to earn income, facilitate
portfolio management and mitigate risks. Such strategic transactions are
generally accepted under modern portfolio management and are regularly used by
many mutual funds and other institutional investors. Although the investment
adviser seeks to use the practices to further the Fund's investment objective,
no assurance can be given that these practices will achieve this result.

The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity, fixed-income and interest rate indices, and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a risk
management or hedging technique to seek to protect against possible adverse
changes in the market value of securities held in or to be purchased for the
Fund's portfolios, protect the Fund's unrealized gains, facilitate the sale of
certain securities for investment purposes, protect against changes in currency
exchange rates, manage the effective maturity or duration of the Fund's
portfolio, or establish positions in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. The Fund may sell
options on securities the Fund owns or has the right to purchase without
additional payments in an amount up to 25% of the Fund's assets for non-hedging
purposes. Strategic Transactions involving financial futures and options thereon
will be purchased, sold or entered into only for bone fide hedging, risk
management or portfolio management purposes and not for speculative purposes.

Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of such Strategic Transactions may result
in losses greater than if they had not been used, require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, limit the amount of appreciation the Fund can realize on
an investment, or cause the Fund to hold a security it might otherwise sell.
Money paid by the Fund as premium and money or other assets placed in margin
accounts in connection with entering into Strategic Transactions are not
otherwise available to the Fund for investment purposes.

The Fund may engage in currency transaction in order to hedge the value of
currencies against fluctuations in relative value. Currency transactions include
forward currency contracts, exchange listed currency futures contracts, exchange
listed and OTC options on currencies or futures contracts, and currency swaps.
The use of currency transactions can result in the Fund incurring losses as a
result of a number of factors including the imposition of

13
<PAGE> 49

exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows based on
the notional difference among two or more currencies and operates similarly to
an interest rate swap. The Fund may enter into currency transactions with
persons rated A-1 or P-1 by S&P or Moody's, respectively, or that have an
equivalent rating from an NRSRO or (except for OTC options) are determined to be
of comparable credit quality by the Fund's investment adviser. The Fund's
dealings in forward currency contracts and other currency transactions such as
futures, options, options on futures and swaps will be limited to hedging
involving either specific transactions or portfolio positions. The Fund will not
enter into a transaction to hedge currency exposure to an extent greater, after
netting all transactions intended to wholly or partially offset other
transactions, than the aggregate market value (at the time of entering into the
transaction) of the securities held in its portfolio that are denominated or
generally quoted in or currently convertible into such currency other than with
respect to proxy hedging as described below.

The Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which the Fund expects to have
portfolio exposure. To attempt to reduce the effect of currency fluctuations on
the value of existing or anticipated holdings of portfolio securities, the Fund
also may engage in proxy hedging. Proxy hedging is often used when the currency
to which the Fund's portfolio is exposed is difficult to hedge or to hedge
against the dollar. Proxy hedging entails entering into a forward contract to
sell a currency whose changes in value are generally considered to be linked to
a currency or currencies in which some or all of the Fund's portfolio securities
are or are expected to be denominated, and to buy U.S. dollars. The amount of
the contract would not exceed the value of the Fund's securities denominated in
linked currencies. For example, if the Fund's investment adviser considers the
Austrian schilling to be linked to the German deutschemark (the "D-mark"), the
Fund holds securities denominated in Austrian schillings and the Fund's
investment adviser believes that the value of schillings will decline against
the U.S. dollar, the Adviser may enter into a contract to sell D-marks and buy
dollars. Proxy hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
If the Fund enters into a currency hedging transaction, the Fund will comply
with the asset segregation requirements described below.

Currency transactions are subject to some risks different from other
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments. These can result in losses to the Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.

When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business

14
<PAGE> 50

hours in the United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States, and (v) lower trading volume and liquidity.

OTHER PRACTICES. For cash management and investment purposes, the Fund may
engage in repurchase agreements with banks and broker-dealers. Such transactions
are subject to the risk of default by the other party.

In order to generate additional income, the Fund may lend its portfolio
securities in an amount of up to 50% of its total assets to broker-dealers,
banks or other recognized institutional borrowers of securities. Such loans must
be callable at any time and the borrower at all times during the loan must
maintain cash or liquid securities as collateral or provide the Fund an
irrevocable letter of credit equal to at least 100% of the value of the
securities loaned (including accrued interest). During the time portfolio
securities are on loan, the Fund receives any dividends or interest paid on such
securities and the interest earned on the collateral which is invested
short-term instruments or receives an agreed-upon amount of interest income from
the borrower who has delivered the collateral or letter of credit. 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.

Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.

The Fund may engage in substantial short-term trading, and it may sell
securities without regard to the length of time they have been held in order to
take advantage of new investment opportunities or yield differentials or
otherwise. The Fund's portfolio turnover is shown under the heading "Financial
Highlights." The portfolio turnover rate may be expected to vary from year to
year. A high portfolio turnover rate (100% or more) increases the Fund's
transactions costs (including brokerage commissions or dealer costs), which may
adversely affect the Fund's total return, and a high portfolio turnover rate may
result in the realization of more short-term capital gains than if the Fund had
a lower portfolio turnover. The turnover rate will not be a limiting factor,
however, if the Fund's investment adviser considers portfolio changes
appropriate.

YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser 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 assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.

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<PAGE> 51

INVESTMENT ADVISORY SERVICES

THE ADVISER. Van Kampen Investment Advisory Corp. is the Fund's investment
adviser (the "Adviser" or "Advisory Corp"). The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate of 0.55% applied to average daily net assets
of the Fund.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

PORTFOLIO MANAGEMENT. The Fund is managed by Thomas J. Slefinger, First Vice
President of the Adviser. Mr. Slefinger has been primarily responsible for the
day-to-day management of the Fund's portfolio since the Fund commenced
investment operations. Mr. Slefinger has been employed by the Adviser since July
1989.

PURCHASE OF SHARES

GENERAL

16
<PAGE> 52

transfer agency costs) resulting from such deferred sales charge arrangement,
(ii) generally, each class of shares has exclusive voting rights with respect to
approvals of the Rule 12b-1 distribution plan (described below) 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 asset value per share for each class of shares of the Fund generally is
determined once daily as of 5:00 p.m. Eastern time on each U.S. business day
(i.e. each day the New York Stock Exchange is open for trading) except on any
day on which no purchase or redemption orders are received or there is not a
sufficient degree of trading in the Fund's portfolio securities such that the
Fund's net asset value per share might be materially affected. The Fund reserves
the right to calculate the net asset value per share and adjust the offering
price based thereon more frequently than once daily if deemed desirable. Net
asset value per share for each class is determined by dividing the value of the
Fund's portfolio securities, cash and other assets (including accrued interest)
attributable to such class, less all liabilities (including accrued expenses)
attributable to such class, by the total number of shares of the class
outstanding. Portfolio securities traded in the over-the-counter markets are
valued by using the last available bid price or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established by the Board of
Trustees. Options written are valued based on the last asked price in the case
of exchange-traded options or, in the case of options traded in the OTC market,
the average of the last asked price as obtained from one or more dealers.
Options purchased are valued based on the last bid price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
average of the last bid price as obtained from two or more dealers. Portfolio
securities which are traded on stock exchanges are valued at the last sale price
on the principal market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities for which market quotations are not
readily available are valued at a fair value as determined in good faith by the
Adviser in accordance with procedures established by the Board of Trustees.
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. Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as obtained from one
or more dealers.

Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed well before the close of business on each U.S. business day. In
addition, securities trading in a particular country or countries may not take
place on all U.S. business days or may take place on days which are not U.S.
business days. Changes in valuation on certain securities may occur at times or
on days on which the Fund's net asset value is not calculated and on which the
Fund does not effect sales, redemptions and exchanges of its shares.

The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, once daily as of 5:00 p.m. Eastern time
on each U.S. business day. Such calculation does not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation.

If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities will
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Board of Trustees.

17
<PAGE> 53

connection with the sale and distribution of its shares and service fees in
connection with the provision of ongoing services to shareholders of each class.

The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares and the dividends payable on such class of
shares will be reduced by the amount of the distribution fees and other expenses
associated with such class of shares. To assist investors in comparing classes
of shares, the tables under the heading "Fees and Expenses of the Fund" provide
a summary of sales charges and expenses and an example of the sales charges and
expenses applicable to each class of shares.

18
<PAGE> 54

CLASS A SHARES

Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 3.25% of the offering price (or 3.36% of the net amount
invested), reduced on investments of $25,000 or more as follows:

CLASS A SHARES

SALES CHARGE SCHEDULE

<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C>
Less than $25,000 3.25% 3.36%
..........................................................
$25,000 but less than
$250,000 2.75% 2.83%
..........................................................
$250,000 but less than
$500,000 1.75% 1.78%
..........................................................
$500,000 but less than
$1,000,000 1.50% 1.52%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within three years of purchase as shown in the
table as follows:

CLASS B SHARES

SALES CHARGE SCHEDULE

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- ------------------------------------------------
<S> <C>
First 3.00%
................................................
Second 2.00%
................................................
Third 1.00%
................................................
Fourth and After None
................................................
</TABLE>

19
<PAGE> 55

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

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital 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 purchase Class A
Shares.

CONVERSION FEATURE

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

20
<PAGE> 56

shares of the same class of the Fund within 180 days after redemption. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Fund's Statement of Additional Information or contact your
authorized dealer.

QUANTITY DISCOUNTS

As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.

OTHER PURCHASE PROGRAMS

21
<PAGE> 57

value). Of this amount, the Distributor will pay to the authorized dealer, if
any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information with respect to this program, including the terms and
conditions that apply to the program, should contact their authorized dealer or
the Distributor.

(1) Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

(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.

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<PAGE> 58

Distributor in the Participating Funds after February 1, 1997, that (1) the
initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than
100 eligible employees. Such plans that have been established with a
Participating Fund or have received proposals from the Distributor prior to
February 1, 1997 based on net asset value purchase privileges previously in
effect will be qualified to purchase shares of the Participating Funds at
net asset value for accounts established on or before May 1, 1997. Section
403(b) and similar accounts for which Van Kampen Trust Company serves as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a commission
will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

REDEMPTION OF
SHARES

Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed

23
<PAGE> 59

within seven days after acceptance by Investor Services 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. Such payment
may, under certain circumstances, be paid wholly or in part by a
distribution-in-kind of portfolio securities. If the shares to be redeemed have
been recently purchased by check, Investor Services may delay the redemption
until it confirms the purchase check has cleared, which may take up to 15 days.
A taxable gain or loss will be recognized by the shareholder upon redemption of
shares.

24
<PAGE> 60

processed at the next determined net asset value per share. These privileges are
available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.

OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.

DISTRIBUTIONS FROM THE FUND

SHAREHOLDER SERVICES

25
<PAGE> 61

distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.

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 Investor Services 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 Investor Services. 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.

Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's account, the check will be
returned and the shareholder may be subject to additional charges. A shareholder
may not liquidate the entire account by means of a check. The check writing
privilege may be terminated or suspended at any time by the Fund or the Bank.
Retirement plans and accounts that are subject to backup withholding are not
eligible for the privilege.

To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.

26
<PAGE> 62

FEDERAL INCOME
TAXATION

27
<PAGE> 63

capital gains over net short-term capital losses) as capital gains dividends, if
any, are taxable to shareholders as long-term capital gains, whether paid in
cash or reinvested in additional shares, and regardless of how long the shares
of the Fund have been held by such shareholders. Such capital gains dividends
may be taxed at different rates depending on how long the Fund held the
securities. The Fund expects that its distributions will consist of ordinary
income and capital gains dividends. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming such shares are held as a capital asset).
Although distributions generally are treated as taxable in the year they are
paid, distributions declared in October, November or December, payable to
shareholders of record on a specified date in such month and paid during January
of the following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.

28
<PAGE> 64

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, independent accountants, whose report,
along with the Fund's financial statements, is included in the Statement of
Additional Information and may be obtained by shareholders without charge by
calling the telephone number on the back cover of this prospectus. This
information should be read in conjunction with the financial statements and
notes thereto included in the Statement of Additional Information.

<TABLE>
<CAPTION>
Class A Shares
Nine Months
Ended
March 31, Year Ended June 30,
1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Net Asset Value, Beginning of the Period...... $7.55 $7.62 $7.56 $8.15 $9.11
------ ----- ------ ------ ------ -------
Net Investment Income........................ .39 .42 .49 .50 .59
Net Realized and Unrealized Gain/Loss........ (.13) .03 .16 (.45) (.89)
------ ----- ------ ------ ------ -------

Total from Investment Operations.............. .26 .45 .65 .05 (.30)
------ ----- ------ ------ ------ -------

Less:
Distributions from and in Excess of Net
Investment Income.......................... .42 .51 -0- .37 .35
Return of Capital Distribution............... .04 .01 .59 .27 .31
------ ----- ------ ------ ------ -------
Total Distributions........................... .46 .52 .59 .64 .66
------ ----- ------ ------ ------ -------

Net Asset Value, End of the Period............ $7.35 $7.55 $7.62 $7.56 $8.15
====== ===== ====== ====== ====== =======

Total Return*(a).............................. 3.46% 6.09% 8.81% .69% (3.61%)
Net Assets at End of the Period (In
millions).................................... $45.7 $39.5 $50.1 $72.5 $147.7
Ratio of Expenses to Average Net Assets*(b)... 1.39% 1.33% 1.31% 1.14% 1.13%
Ratio of Net Investment Income to Average Net
Assets*...................................... 5.40% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover............................ 175% 378% 225% 204% 259%

* If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets
(b)........................................ 1.41% 1.36% 1.34% N/A N/A
Ratio of Net Investment Income to Average Net
Assets..................................... 5.38% 5.34% 6.51% N/A N/A

<CAPTION>
Class B Shares
Nine Months
Ended
March 31, Year Ended June 30,
1999 1998(a) 1997(a) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $7.55 $7.62 $7.56 $8.15 $9.10
------ ------ ------ ------ ------ -------
Net Investment Income........................ .36 .35 .39 .41 .54
Net Realized and Unrealized Gain/Loss........ (.16) .04 .20 (.42) (.90)
------ ------ ------ ------ ------ -------
Total from Investment Operations.............. .20 .39 .59 (.01) (.36)
------ ------ ------ ------ ------ -------
Less:
Distributions from and in Excess of Net
Investment Income.......................... .37 .45 -0- .34 .32
Return of Capital Distribution............... .03 .01 .53 .24 .27
------ ------ ------ ------ ------ -------
Total Distributions........................... .40 .46 .53 .58 .59
------ ------ ------ ------ ------ -------
Net Asset Value, End of the Period............ $7.35 $7.55 $7.62 $7.56 $8.15
====== ====== ====== ====== ====== =======
Total Return*(a).............................. 2.67% 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the Period (In
millions).................................... $19.6 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average Net Assets*(b)... 2.16% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment Income to Average Net
Assets*...................................... 4.48% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover............................ 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets
(b)........................................ 2.18% 2.12% 2.12% N/A N/A
Ratio of Net Investment Income to Average Net
Assets..................................... 4.46% 4.59% 5.76% N/A N/A

<CAPTION>
Class C Shares
Nine Months August 13, 1993
Ended (Commencement of
March 31, Year Ended June 30, Distribution) to
1999 1998(a) 1997(a) 1996 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $7.55 $7.62 $7.56 $8.16 $ 9.24
------ ------ ------ ------ ------ ------
Net Investment Income........................ .34 .35 .45 .50 .49
Net Realized and Unrealized Gain/Loss........ (.14) .04 .14 (.52) (1.05)
------ ------ ------ ------ ------ ------
Total from Investment Operations.............. .20 .39 .59 (.02) (.56)
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess of Net
Investment Income.......................... .37 .45 -0- .34 .27
Return of Capital Distribution............... .03 .01 .53 .24 .25
------ ------ ------ ------ ------ ------
Total Distributions........................... .40 .46 .53 .58 .52
------ ------ ------ ------ ------ ------
Net Asset Value, End of the Period............ $7.35 $7.55 $7.62 $7.56 $ 8.16
====== ====== ====== ====== ====== ======
Total Return*(a).............................. 2.67% 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the Period (In
millions).................................... $.3 $.2 $.2 $.2 $ .2
Ratio of Expenses to Average Net Assets*(b)... 2.16% 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment Income to Average Net
Assets*...................................... 4.67% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover............................ 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by
the Adviser, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets
(b)........................................ 2.17% 2.12% 2.09% N/A N/A
Ratio of Net Investment Income to Average Net
Assets..................................... 4.65% 4.60% 5.69% N/A N/A
</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) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.

N/A = Not Applicable

See Financial Statements and Notes thereto

29
<PAGE> 65

APPENDIX -- DESCRIPTION

OF SECURITIES RATINGS

STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:

2. Nature of and provisions of the obligation:

1. LONG-TERM DEBT -- INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.

SPECULATIVE GRADE

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

A- 1

<PAGE> 66

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A- 2

<PAGE> 67

3. PREFERRED STOCK

The preferred stock ratings are based on the following considerations:

ii. Nature of, and provisions of, the issuer.

iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.

BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.

CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.

C: A preferred stock rated "C" is a nonpaying issue.

D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.

MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's)

A- 3

<PAGE> 68

rating symbols and their meanings (as published by Moody's Investors Service)
follows:

1. LONG-TERM DEBT

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published in
Moody's publications.

2. SHORT-TERM DEBT

A- 4

<PAGE> 69

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

- -- Leading market positions in well-established industries.

- -- High rates of return on funds employed.

- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- -- Broad margins is earnings coverage of fixed financial charges and high
internal cash generation.

- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.

C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

A- 5

<PAGE> 70

FOR MORE INFORMATION

EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday

DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666

TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833

FUND INFO(R)
For automated telephone services, call (800) 847-2424

WEB SITE
www.vankampen.com

VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND

1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Investment Adviser

VAN KAMPEN INVESTMENT ADVISORY CORP.

1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Distributor

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Transfer Agent

VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256

Attn: Van Kampen Short-Term Global Income Fund

Custodian

STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713

Attn: Van Kampen Short-Term Global Income Fund

Legal Counsel

SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG LLP

303 East Wacker Drive

Chicago, IL 60601

-
<PAGE> 71

VAN KAMPEN

SHORT-TERM GLOBAL

INCOME FUND

PROSPECTUS

, 1999

A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.

You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.

[VAN KAMPEN FUNDS LOGO]

Investment Company Act File No. 811-4629 STGI PRO 7/99

<PAGE> 72

[VAN KAMPEN FUNDS LOGO]

SUBJECT TO COMPLETION --

DATED MAY 28, 1999

VAN KAMPEN

STRATEGIC INCOME FUND

Van Kampen Strategic Income Fund is a mutual fund with a primary investment
objective to seek to provide its shareholders with high current income. The Fund
has a secondary investment objective of seeking capital appreciation. The Fund's
management seeks to achieve the investment objectives by investing primarily in
a portfolio of income securities selected from the following market sectors:
U.S. government securities; domestic investment grade income securities;
domestic lower-grade income securities; foreign investment grade income
securities; and foreign lower-grade income securities. Investments are allocated
among these sectors based on evaluations of the relative investment
opportunities and investment risks presented by each sector as determined from
time to time by the Fund's investment adviser.

This prospectus is dated , 1999.

<PAGE> 73

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary.............................. 3
Fees and Expenses of the Fund.................... 7
Investment Objectives and Policies............... 8
Investment Advisory Services..................... 20
Purchase of Shares............................... 21
Redemption of Shares............................. 28
Distributions from the Fund...................... 29
Shareholder Services............................. 30
Federal Income Taxation.......................... 31
Financial Highlights............................. 33
Appendix -- Description of Securities Ratings.... A-1
</TABLE>

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVES

The Fund is a mutual fund with a primary investment objective to seek to provide
its shareholders with high current income. The Fund has a secondary investment
objective of seeking capital appreciation. There can be no assurance that the
Fund will achieve its investment objectives.

INVESTMENT STRATEGIES

The Fund's management seeks to achieve the investment objectives by investing
primarily in a portfolio of income securities selected from the following market
sectors: U.S. government securities; domestic investment grade income
securities; domestic lower-grade income securities; foreign investment grade
income securities; and foreign lower-grade income securities. Investments are
allocated among these sectors based on evaluations of the relative investment
opportunities and investment risks presented by each sector as determined from
time to time by the Fund's investment adviser. Under normal market conditions,
at least 65% of the Fund's total assets are invested in U.S. dollar-denominated
income securities and at least 40% of the Fund's total assets are invested in
U.S. government securities and investment grade income securities. A substantial
portion of the Fund's total assets may be invested in lower-grade securities,
including securities in default, and in securities of foreign issuers, including
securities of issuers from emerging markets countries. Although the Fund is not
required to invest a minimum amount of its assets in issuers of any one market
sector, under normal market conditions, at least 10% of the Fund's total assets
is invested in each of at least three of these sectors. Investment grade
securities are securities rated at the time of purchase BBB or higher by
Standard & Poor's ("S&P") or rated Baa or higher by Moody's Investors Services,
Inc. ("Moody's") or comparably rated by another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, determined by the
Fund's investment adviser to be of comparable quality (see sidebar for an
explanation of quality ratings). Lower-grade securities are securities rated BB
or lower by S&P or rated Ba or lower by Moody's or comparably rated by another
NRSRO or unrated securities of comparable quality. Lower-grade securities are
commonly referred to as "junk bonds" and involve special risks as compared to
investments in higher-grade securities. The Fund may invest mortgage-backed and
asset-backed securities, stripped securities and variable and floating rate
securities. The Fund may purchase and sell securities on a when-issued or
delayed delivery basis. The Fund borrows money for investment purposes which
creates the opportunity for increased return but also involves special risks.
The Fund may purchase or sell certain derivative instruments (such as options,
futures and options on futures, and interest rate swaps or other interest
rate-related transactions) for various risk management and hedging purposes.

INVESTMENT RISKS

An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund.

MARKET RISK. Market risk is the possibility that market values of securities
owned by the Fund will decline. The prices of income securities tend to fall as
interest rates rise, and such declines tend to be greater among income
securities with longer maturities or longer durations. The Fund has no policy
limiting the maturities of its investments. To the extent the Fund invests in
securities with longer maturities, the Fund will be subject to greater market
risk than a fund investing solely in shorter-term securities. Lower-grade
quality securities, especially those with long maturities or that do not make
regular interest payments, may fluctuate more in price in response to negative
issuer or general economic news than higher-grade securities. Foreign markets
may, but often do not, move in tandem with changes in U.S. markets, and foreign
markets may have more price volatility than U.S. markets.

Market risk is often greater among certain types of income securities, such as
mortgage-backed and asset-backed securities, stripped income securities or
zero-coupon bonds. As interest rates change, these securities often fluctuate
more in price than traditional debt securities and may subject the Fund to
greater market risk than a fund that does not own these types of securities.

Investments in when-issued and delayed delivery transactions are subject to
changes in market conditions from the time of the commitment until settlement.
This may adversely affect the prices or yields of the securities being
purchased, as well as any portfolio securities held for payment of such
commitments. The greater the Fund's outstanding

3
<PAGE> 75

commitments for these securities, the greater the Fund's exposure to market
price fluctuation.

UNDERSTANDING

QUALITY RATINGS

Income securities ratings are based on the issuer's ability to pay interest
and repay the principal. Securities with ratings above the line are
considered "investment grade," while those with ratings below the line are
regarded as "noninvestment grade," or "junk bonds." A detailed explanation
of these ratings can be found in the appendix to this prospectus.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund may invest in securities with
low-credit quality, the Fund is subject to a higher level of credit risk than a
fund that buys only investment grade securities. The credit quality of
"noninvestment grade" securities is considered speculative by recognized rating
agencies with respect to the issuer's continuing ability to pay interest and
principal. Lower-grade securities may have less liquidity and a higher incidence
of default than investments in higher-grade securities. The Fund may incur
higher expenditures to protect the Fund's interest in such securities. The
credit risks and market prices of lower-grade securities are more sensitive to
negative issuer developments, such as reduced revenues or increased
expenditures, or adverse economic conditions, such as a recession, than are
higher-grade securities.

INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well. The more the Fund invests in
adjustable, variable or floating rate securities or in securities susceptible to
prepayment risk, the greater the Fund's income risk.

PREPAYMENT OR CALL RISK. If interest rates fall, the principal on income
securities held by the Fund may be prepaid, or "called", earlier than expected.
If this happens, the proceeds from a prepaid security would be reinvested by the
Fund in securities bearing the new, lower interest rates, resulting in a
possible decline in the Fund's income and distributions to shareholders.

EXTENSION RISK. The value of income securities tends to fall as interest rates
rise. For mortgage-backed securities or other similar securities, if interest
rates rise then borrowers may prepay the principal underlying the income
security more slowly than originally expected, which may further reduce the
market value of such security and lengthen the duration of the security.

BORROWING RISKS. The Fund may borrow money for investment purposes, which is
known as "leverage." The Fund may use leverage to seek to enhance the income to
shareholders, but the use of leverage creates the likelihood of greater
volatility in the net asset value of the Fund's shares. Leverage also creates
the risk that fluctuations in interest rates on leverage may adversely affect
the return to shareholders and the Fund's ability to make dividend payments. To
the extent that income from investments made with such borrowed money exceeds
the interest payable and other expenses of the leverage, the Fund's net income
will be less than if the Fund did not use leverage and the amount available for
distributions to shareholders of the Fund will be reduced. The Fund's use of
leverage also may impair the ability of the Fund

4
<PAGE> 76

to maintain its qualification for federal income tax purposes as a regulated
investment company.

RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures, interest
rate swaps and other interest-rate related transactions are examples of
derivatives. Such transactions involve risks different from the direct
investment in underlying securities such as imperfect correlation between the
value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.

MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be appropriate
for investors who:

- - Seek high current income and capital appreciation over the long term.

- - Are willing to take on the substantially increased risks of lower-grade
securities in exchange for potentially higher income.

- - Are willing to take on increased risks associated with investing in foreign
securities.

- - Wish to add to their personal investment portfolio a fund that invests
primarily in domestic and foreign issuers of income securities of any credit
quality.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past five calendar years prior to
the date of this prospectus. Sales loads are not reflected in this chart. If
these sales loads had been included, the returns shown below would have been
lower. Remember that the past performance of the Fund is not indicative of its
future performance.

<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1994' -16.19
'1995' 23.42
'1996' 12.83
'1997' 6.13
'1998' -1.5
</TABLE>

During the five-year period shown in the bar chart, the highest quarterly return
was 11.48% (for the quarter ended June 30, 1995) and the lowest

5
<PAGE> 77

quarterly return was -9.55% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with two broad-based market
indices that the Fund's management believes are applicable benchmarks for the
Fund: the Lehman Brothers Aggregate Bond Index and a Composite of Salomon
Brothers Indices.(1) The Fund's performance figures include the maximum sales
charges paid by investors. The indices' performance figures do not include
commissions or sale charges that would be paid by investors purchasing the
securities represented by the indices. Average annual total returns are shown
for the periods ended December 31, 1998 (the most recently completed calendar
year prior to the date of this prospectus). Remember that the past performance
of the Fund is not indicative of its future performance.

- ------------------

(1)This index is a composite reflecting 20% of each of the following Salomon
Brothers Indices: Mortgage Index, High Yield Market Index, Corporate Index,
Non-U.S. Dollar World Government Index and Brady Bond Index.

<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Since
December 31, 1998 1 Year 5 Years Inception
- -------------------------------------------------------
<S> <C> <C> <C>
Van Kampen
Strategic Income
Fund - Class A
Shares -6.19% 3.05% 3.05%(1)
Lehman Brothers
Aggregate Bond
Index % % %
Composite of
Salomon Brother
Indices % % %
.......................................................
Van Kampen
Strategic Income
Fund - Class B
Shares -5.93% 3.02% 3.02%(1)
Lehman Brothers
Aggregate Bond
Index % % %
Composite of
Salomon Brothers
Indices % % %
.......................................................
Van Kampen
Strategic Income
Fund - Class C
Shares -3.20% 3.22% 3.22%(1)
Lehman Brothers
Aggregate Bond
Index % % %
Composite of
Salomon Brothers
Indices % % %
.......................................................
</TABLE>

Inception date: (1) 12/31/93.

The current yield for the thirty-day period ended March 31, 1999 is 8.32% for
Class A Shares, 7.97% for Class B Shares and 7.97% for Class C Shares. Absent
the investment adviser's waiver or reimbursement of a portion of management fees
and/or other expenses, the current yield for the thirty-day period ended March
31, 1999 is 8.05% for Class A Shares, 7.70% for Class B Shares and 7.70% for
Class C Shares. Investors can obtain the current yield of the Fund for each
class of shares by calling (800) 341-2911.

6
<PAGE> 78

FEES AND EXPENSES
OF THE FUND

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

(fees paid directly from your investment)

(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."

(3) The maximum deferred sales charge is 4.00% in the first year after purchase
and declining thereafter as follows:

Year 1-4.00%

Year 2-3.75%

Year 3-3.50%

Year 4-2.50%
Year 5-1.50%

Year 6-1.00%

ANNUAL FUND

OPERATING EXPENSES

(expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees(1) 0.75% 0.75% 0.75%
..............................................................
Distribution and/or
Service (12b-1) 0.25% 1.00%(3) 1.00%(3)
Fees(2)
..............................................................
Other Expenses:
Miscellaneous Other
Expenses(4) 0.82% 0.83% 0.82%
Interest 1.79% 1.80% 1.77%
Expenses(5)
..............................................................
Total Annual Fund
Operating Expenses(4) 3.61% 4.38% 4.34%
..............................................................
</TABLE>

(1) The rate shown represents the effective Management Fees as a percentage of
average daily net assets. Management Fees are based on a percentage of
averaged daily managed assets. For purposes of determining Management Fees,
the "daily managed assets" means the sum of the Fund's assets minus accrued
liabilities other than the aggregate amount of any borrowings undertaken by
the Fund. See "Investment Advisory Services".

(4) The Fund's investment adviser is currently waiving or reimbursing a portion
of the Fund's Management Fees or Other Expenses such that actual Total
Annual Fund Operating Expenses for the fiscal period ended March 31, 1999
were 3.32%, 4.09% and 4.05% for Class A Shares, Class B Shares and Class C
Shares, respectively. The fee waivers or expense reimbursements can be
terminated at any time.

(5) The Fund incurred financing expenses related to borrowings for investment
purposes. Borrowings provide the opportunity for increased net income, but
may increase the Fund's investment risk. "Total Annual Fund Operating
Expenses" without regard to the interest expenses would have been 1.82%,
2.58% and 2.57% for Class A Shares, Class B Shares and Class C Shares,
respectively. See "Financial Highlights" and "Investment Objectives and
Policies."

Example:

The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.

7
<PAGE> 79

higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $821 $1,528 $2,255 $4,162
.......................................................................
Class B Shares $839 $1,676 $2,374 $4,361*
.......................................................................
Class C Shares $535 $1,315 $2,206 $4,486
.......................................................................
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $821 $1,528 $2,255 $4,162
.......................................................................
Class B Shares $439 $1,326 $2,224 $4,361*
.......................................................................
Class C Shares $435 $1,315 $2,206 $4,486
.......................................................................
</TABLE>

* Based on conversion to Class A Shares after eight years.

INVESTMENT OBJECTIVES

AND POLICIES

The Fund's primary investment objective is to seek to provide its shareholders
with high current income. The Fund has a secondary investment objective of
seeking capital appreciation. The Fund's investment objectives are fundamental
policies and may not be changed without approval of the holders of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). There are risks inherent in all
investments in securities; accordingly there can be no assurance that the Fund
will achieve its investment objectives.

The Fund's investment adviser seeks to achieve the investment objectives by
investing primarily in a portfolio of income securities selected from the
following market sectors: U.S. government securities; domestic investment grade
income securities; domestic lower-grade income securities; foreign investment
grade income securities; and foreign lower-grade income securities. Under normal
market conditions, at least 65% of the Fund's total assets are invested in U.S.
dollar-denominated income securities. Under normal market conditions, at least
40% of the Fund's total assets are invested in U.S. government securities and
investment grade quality securities of U.S. and foreign issuers. Although the
Fund is not required to invest a minimum amount of its assets in issuers of any
one market sector, under normal market conditions, at least 10% of the Fund's
total assets is invested in each of at least three of these sectors. The Fund
does not intend to invest more than 25% of its total assets in any one industry
or in securities of issuers (including foreign governments) located in any
single country other than the U.S. The Fund may invest a substantial portion of
its total assets (up to 60%) in lower-grade income securities, including
securities in default.

The Fund's investment adviser allocates the Fund's assets among various market
sectors based on its evaluations of the relative investment opportunities and
investment risks presented by income securities in such sectors from time to
time. The Fund's investment adviser believes that, over time, market sectors
become undervalued relative to the risks of investing in such sectors due to
actual or perceived changes in interest rate cycles, business or economic
conditions, rates of inflation, currency relationships, political factors,
investor demand, new issue or secondary market supply and other factors.
Accordingly, the relative investment performance of the various market sectors
change over time, with the best performing sectors frequently changing from
year-to-year. The Fund's investment adviser seeks to take advantage of these
changes by allocating a greater proportion of the Fund's assets to those market
sectors that it believes are undervalued. If successful, this strategy may
enable the Fund to achieve a higher level of investment return over time than if
the Fund invested exclusively in one market sector or if the Fund allocated a
fixed proportion of its assets to each market sector. In addition, the Fund has
a policy of investing, under normal market conditions, at least 10% of its total
assets in each of at least three market sectors. This policy may, over time,
enable the Fund to experience less volatility in income and net asset value than
if the Fund invested exclusively in one market sector. The Fund is, however,
more dependent on the Fund's investment adviser's ability to successfully
evaluate the relative values of various market sectors as compared to a fund
that does not seek to adjust sector allocations over time.

The Fund may invest in income securities of any maturity and denominated in any
currency. The types of income securities in which the Fund may invest include
the following: fixed or variable rate bonds, notes, bills or debentures;
mortgage-backed and asset-backed securities; stripped income securities;

8
<PAGE> 80

discount, zero coupon payment-in-kind securities; convertible securities;
income-producing equity securities such as dividend paying common stock;
preferred stock, convertible preferred stock and warrants or other equity
securities acquired as units together with other income securities; bank debt
obligations; short-term commercial paper; loan participations and assignments;
assignments and interests issued by entities organized and operated for the
purpose of restructuring the investment characteristics of other income
securities and securities whose principal or interest payments are indexed to
changes in the values of currencies, interest rates, commodities or a basket of
securities.

The value of income securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, income security prices
generally fall; if interest rates fall, income security prices generally rise.
Shorter-term securities are generally less sensitive to interest rate changes
than longer-term securities; thus, for a given change in interest rates, the
market prices of shorter-maturity income securities generally fluctuate less
than the market prices of longer-maturity income securities. Income securities
with shorter maturities generally offer lesser yields than debt securities with
longer maturities assuming all other factors, including credit quality, being
equal. The Fund has no policy limiting the maturities of the individual income
securities in which it may invest. Certain income securities are subject to
additional market risks, see "Additional Information Regarding Certain Income
Securities" below.

Credit risk refers to an issuer's ability to make timely payments of interest
and principal. Under normal market conditions, the Fund invests at least 40% of
its net assets in investment grade quality income securities. Investment grade
quality securities are securities rated at the time of investment BBB or higher
by S&P or rated Baa or higher by Moody's or comparably rated by another NRSRO
or, if unrated, considered by the Fund's investment adviser to be of comparable
quality. Credit quality at the time of purchase determines which securities may
be acquired, and a subsequent reduction in ratings does not require the Fund to
dispose of a security. Under normal market conditions, the Fund may invest up to
60% of it net assets in lower-grade securities, which are securities rated BB or
lower by S&P or rated Ba or lower by Moody's or comparably rated by another
NRSRO or unrated securities of comparable quality. Lower-grade securities tend
to offer higher yields than higher-grade securities with the same maturities,
but generally involve greater risks than higher-grade securities. Lower-grade
securities are regarded by recognized rating agencies as predominantly
speculative with respect to the issuer's continuing ability to pay interest and
principal. The ratings assigned by the ratings agencies represent their opinions
of the quality of the income securities they undertake to rate, but not the
market value risk of such securities. It should be emphasized that ratings are
general and are not absolute standards of quality. See "Risks of Investing in
Lower-Grade Securities" below. For further description of securities ratings,
see the appendix to this prospectus.

The Fund will invest in securities of U.S. and foreign issuers. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment. Since the Fund may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value of
investments in the portfolio and accrued income thereon. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and the Fund's yield on
such assets. The Fund may engage in various foreign currency transactions (such
as transactions in instruments such as forward foreign currency contracts,
options on foreign currencies, foreign currency swap agreements, financial
futures contracts and options thereon) for risk management or hedging purposes
to seek to minimize adverse foreign currency exchange fluctuations. There can,
however, be no assurance that the Fund will not be adversely affected by
fluctuations in foreign currency exchange rates, and such risk management or
hedging transactions also entail risks. See also "Risk of Investing in
Securities of Foreign Issuers" below, "Other Investments and Risk Factors" below
and the Fund's Statement of Additional Information.

MARKET SECTORS

U.S. GOVERNMENT SECURITIES. U.S. government securities are obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities. These
obligations may be either direct obligations or the U.S. Treasury or obligations
issued or guaranteed by U.S. government agencies or instrumentalities. Of the
obligations issued or guaranteed by agencies or instrumentalities, some are
backed by the full faith and credit of the U.S. government and others are

9
<PAGE> 81

backed only by the right of the issuer to borrow from the U.S. Treasury. U.S.
government securities generally are not rated, but are generally considered to
be of at least the same credit quality as privately issued securities rated in
the highest investment grade rating categories.

DOMESTIC INVESTMENT GRADE INCOME SECURITIES. Domestic investment grade income
securities are income securities of domestic issuers rated investment grade or,
if not rated, determined by the Fund's investment adviser to be of comparable
quality to investment grade rated securities. Such securities are issued
primarily by domestic corporations.

DOMESTIC LOWER-GRADE INCOME SECURITIES. Domestic lower-grade income securities
are income securities of domestic issuers rated below investment grade or, if
not rated, determined by the Fund's investment 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 this sector may include
interests or assignments in defaulted, non-performing or restructured income
securities. See "Risks of Investing in Lower-Grade Securities" below.

FOREIGN INVESTMENT GRADE INCOME SECURITIES. Foreign investment grade income
securities are income securities issued by non-domestic issuers and rated
investment grade or, if not rated, determined by the Fund's investment adviser
to be of comparable quality to income securities rated investment grade. Such
securities may include income securities issued or guaranteed by foreign
governments or their agencies or instrumentalities, central banks of foreign
countries, supranational entities, and corporations or other business entities.
See "Risks of Investing in Foreign Securities" below.

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 Fund's investment 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 or instrumentalities, central banks of foreign
countries, supranational entities and corporations or other business entities.
Investments in this sector may include interests or assignments in defaulted,
nonperforming or restructured income securities. Issuers of foreign lower-grade
income securities frequently will be located in emerging market countries. See
"Risks of Investing in Lower-Grade Securities" below and "Risks of Investing in
Foreign Securities" below.

RISKS OF INVESTING IN

LOWER-GRADE INCOME SECURITIES

The Fund may invest in lower-grade income securities, which securities are
commonly known as "junk bonds." Securities which are in the lower-grade
categories generally offer a higher current yield than is offered by
higher-grade securities of similar maturities, but they also generally involve
greater risks, such as greater credit risk, greater market risk and volatility,
greater liquidity concerns and potentially greater manager risk. The historical
conditions of the issuers of such securities may not have been as strong as
those of other issuers. These securities may be issued in connection with
corporate restructuring such as leveraged buyouts, mergers, acquisitions, debt
recapitalization or similar events. These securities are often issued by
smaller, less creditworthy companies or companies with substantial debt and may
include financially troubled companies or companies in default or in
restructuring. Such securities often are subordinated to the prior claims of
banks and other senior lenders. Investors should carefully consider the risks of
owning shares of a portfolio which invests in lower-grade securities before
investing in the Fund.

Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade debt securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's securities relate.
Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on

10
<PAGE> 82

its portfolio holdings, and the Fund may be unable to obtain full recovery on
such amounts.

Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.

The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.

The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Trustees. During
periods of reduced market liquidity or in the absence of readily available
market quotations for lower-grade municipal securities held in the Fund's
portfolio, the ability of the Fund's investment adviser to value the Fund's
securities becomes more difficult and the judgment of the Fund's investment
adviser may play a greater role in the valuation of the Fund's securities due to
the reduced availability of reliable objective data.

The Fund's investments in lower-grade securities may include securities rated D
by S&P or C by Moody's (the lowest-grade assigned), and unrated securities of
comparable quality. Securities assigned such ratings include those of companies
that are in default or are in bankruptcy or reorganization. Securities of such
companies are regarded by the rating agencies as having extremely poor prospects
of ever attaining any real investment standing and are usually available at

11
<PAGE> 83

deep discounts from the face values of the instruments. A security purchased at
a deep discount may currently pay a very high effective yield. In addition, if
the financial condition of the issuer improves, the underlying value of the
security may increase, resulting in a capital gain. If the company defaults on
its obligations or remains in default, or if the plan of reorganization does not
provide sufficient payments for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Fund's investment
adviser will balance the benefits of deep discount securities with their risks.
While a diversified portfolio may reduce the overall impact of a deep discount
security that is in default or loses its value, the risk cannot be eliminated.

The Fund will not, however, invest in any security that does not provide for, or
that is not current in the payment of, periodic interest or dividend
distributions if, as a result of such investment, more than 20% of the Fund's
total assets would, at the time of investment, be invested in such securities.

Many lower-grade debt securities are generally not listed for trading on any
national securities exchange, and many issuers of lower-grade debt securities
choose not to have a rating assigned to their obligations by any nationally
recognized statistical rating organization. As a result, the Fund's portfolio
may consist of a relatively high proportion of unlisted or unrated securities as
compared with an investment company that invests primarily in higher-grade
securities. Unrated securities are usually not as attractive to as many buyers
as are rated securities, a factor which may make unrated securities less
marketable. These factors may have the effect of limiting the availability of
the securities for purchase by the Fund and may also limit the ability of the
Fund to sell such securities at their fair value either to meet redemption
requests or in response to changes in the economy or the financial markets.
Further, to the extent the Fund owns or may acquire illiquid or restricted
lower-grade securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.

The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain lower-grade issuers may be
less extensive than other issuers. In its analysis, the Fund's investment
adviser may consider the credit ratings of S&P and Moody's in evaluating
securities although the investment adviser does not rely primarily on these
ratings. Ratings evaluate only the safety of principal and interest payments,
not the market value risk. Additionally, ratings are general and not absolute
standards of quality, and credit ratings are subject to the risk that the
creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Because of the number of
investment considerations involved in investing in lower-grade securities,
achievement of the Fund's investment objectives may be more dependent upon the
investment adviser's credit analysis than is the case with investing in
higher-grade securities.

New or proposed laws may have an impact on the market for lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for lower-grade securities.

Special tax considerations are associated with investing in certain lower-grade
securities, such as zero coupon or pay-in-kind securities. The Fund accrues
income on these securities prior to the receipt of cash payments. The Fund must
distribute substantially all of its income to its shareholders to qualify for
pass-through treatment under federal income tax law and may, therefore, have to
dispose of its portfolio securities to satisfy distribution requirements.

12
<PAGE> 84

securities held by the Fund during the fiscal period ended March 31, 1999
computed on a monthly basis.

<TABLE>
<CAPTION>
Unrated Securities
Rated Securities of Comparable
(as a Quality (as a
Percentage of Percentage of
Rating Category Portfolio Value) Portfolio Value)
- -----------------------------------------------------------------------
<S> <C> <C>
AAA/Aaa % %
.......................................................................
AA/Aa % %
.......................................................................
A/A % %
.......................................................................
BBB/Baa % %
.......................................................................
BB/Ba % %
.......................................................................
B/B % %
.......................................................................
CCC/Caa % %
.......................................................................
CC/Ca % %
.......................................................................
C/C % %
.......................................................................
D % %
.......................................................................
Percentage of Rated
and Unrated % %
Securities
.......................................................................
</TABLE>

The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those set forth above.

RISKS OF INVESTING IN

SECURITIES OF FOREIGN ISSUERS

The Fund may invest in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. Under
normal market conditions, the Fund invests at least 65% of its total assets in
U.S. dollar-denominated securities. The percentage of assets invested in
securities of a particular country or denominated in a particular currency will
vary in accordance with the investment adviser's assessment of the relative
yield, appreciation potential and relationship of a country's currency to the
U.S. dollar, which is based upon such factors as fundamental economic strength,
credit quality and interest rate trends. Investments in foreign securities
present certain risks not ordinarily associated with investments in securities
of U.S. issuers. These risks include fluctuations in foreign currency exchange
rates, political, economic or legal developments (including war or other
instability, expropriation of assets, nationalization and confiscatory
taxation), the imposition of foreign exchange limitations (including currency
blockage), withholding taxes on dividend or interest payments or capital
transactions or other restrictions, higher transaction costs (including higher
brokerage, custodial and settlement costs and currency translation costs) and
possible difficulty in enforcing contracted obligations or taking judicial
action. Also, foreign securities may not be as liquid and may be more volatile
than comparable domestic securities.

In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive auditing, accounting and financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U. S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.

13
<PAGE> 85

affect the U.S. dollar value of the Fund's assets denominated in that currency
and the Fund's yield on such assets. In addition, the Fund will incur costs in
connection with conversions between various currencies.

The risks of foreign investments should be considered carefully by an investor
in the Fund.

ADDITIONAL INFORMATION REGARDING

CERTAIN INCOME SECURITIES

The Fund may invest in certain income securities that involve additional or
special risks to those described above.

14
<PAGE> 86

institutions or other mortgage lenders or issued or guaranteed by agencies or
instrumentalities of the U.S. government. REMICs and CMOs generally 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. Such
securities are subject to market risk, prepayment risk and extension risk.
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).

Additional information regarding, mortgage-backed and asset-backed Securities,
REMICs and CMOs is contained in the Fund's Statement of Additional Information.

STRIPPED INCOME SECURITIES. Stripped income securities are derivative
obligations representing an interest in all or a portion of the interest or
principal components of an underlying security or pool of securities or other
assets. The Fund may invest in stripped income securities issued by agencies or
instrumentalities of the U.S. government or by private originators, including
stripped mortgage-backed related securities. Stripped securities are often
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of underlying 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 yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying assets, and a rapid rate of principal payments may have a
material adverse effect on such security's yield to maturity. If the underlying
assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. PO
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. Furthermore, if the underlying assets experience
slower than anticipated prepayments of principal, the yield of POs could be
materially adversely affected. The market values of IOs and POs are subject to
greater risk of fluctuation in response to changes in market rates of interest
than many other types of government securities and, to the extent the Fund
invests in IOs and POs, such investments increase the risk of fluctuations in
the net asset value of the Fund. Although the market for stripped securities 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.

VARIABLE AND FLOATING RATE SECURITIES. Debt securities in which the Fund invests
may provide for variable or floating rate interest or dividend payments.
Variable or floating rate securities bear rates of interest that are adjusted
periodically according to formulae intended to reflect market rates of interest.
Variable or floating rate securities allow the Fund to participate in increase
in interest rate through upward adjustments of the coupon rates on such
securities. However, during periods of increasing interest rates, changes in the
coupon rates may lag the change in market rates or may have limits on the
maximum increase in coupon rates. Alternative, during period of declining
interest rates, the coupon rates on such securities readjust downward resulting
in lower yield to the Fund. The Fund also may invest in derivative 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, or in securities that pay a rate of interest
determined by applying a multiple to the variable rate. Investment in such
securities involve special risks as compared to a fixed rate security. The
extent of increases and decreases in the value of derivative variable rate
securities and the corresponding change to the net asset value of the Fund in
response to 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. The
markets for such securities may be less developed and have less liquidity than
the markets for conventional securities.

DISCOUNT, ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES. The Fund may invest in
securities sold at a substantial discount from their value at maturity, such as
zero coupon and payment-in-kind securities, when the Fund's investment adviser
believes the effective yield on such securities over comparable instruments
paying current cash income makes these investments attractive. Zero coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are

15
<PAGE> 87

issued and traded at a discount from their face amounts or par value, which
discount varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Payment-in-kind securities are securities that pay
interest through the issuance of additional securities. Prices on
non-cash-paying instruments may be more sensitive to changes in the issuer's
financial condition, fluctuations in interest rates and market demand/supply
imbalances than cash-paying securities with similar credit ratings, and thus may
be more speculative than are securities that pay interest periodically in cash.
In addition, the amount of non-cash interest income earned on such instruments
is included, for federal income tax purposes, in the Fund's calculation of
income that is required to be distributed to shareholders for the Fund to
maintain its desired federal income tax status (even though such non-cash paying
securities do not provide the Fund with the cash flow with which to pay such
distributions). Accordingly, the Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. The Fund's investment adviser will weigh these
concerns against the expected total returns from such instruments.

PREMIUM SECURITIES. The Fund may purchase income 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.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock, warrant or other income security that may be converted into or
exchanged for a specified amount of common stock or other security of the same
or a different issuer within a particular period of time and at a specified
price or formula. A convertible security entitles the holder to receive interest
income on debt securities or dividends paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.

EQUITY FEATURES. Income securities may involve equity features, such as
contingent interest or participations based on revenues, sales or profits (i.e.,
interest or other payments, often in addition to a fixed rate of return, that
are based on the borrower's attainment of specified levels of revenues, sales or
profits). At times, the Fund may also acquire warrants and other equity
securities in connection with the purchase of income securities.

SOVEREIGN DEBT. In addition to Brady Bonds, the Fund may invest in sovereign or
sovereign-related debt obligations, including obligations of supranational
entities. Sovereign debt differs from debt obligations of private entities in
that, generally, remedies for defaults for defaults must be pursued in the
courts of the defaulting party and the legal recourse in enforcing a sovereign
debt is often limited. At certain times, certain countries (particularly
emerging market countries) have declared a moratoria on the payment of principal
and interest on external debt. Such investments may include participations and
assignments of sovereign bank debt, restructured external debt that has not
undergone a Brady-style debt exchange, and internal government debt.

LOANS. The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of all or a portion of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender, not with the borrower. The Fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of

16
<PAGE> 88

the payments from the borrower. The Fund generally has not direct right to
enforce compliance by the borrower with the terms of the loan agreement relating
to the Loan ("Loan Agreement"), nor any rights of set-off against the borrower,
and the Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased the Participation. As a result, the Fund will assume the
credit risk of both the borrower and the Lender that is selling the
Participation. When the Fund purchases Assignments from Lenders, the Fund will
acquire direct rights against the borrower on the Loan. However, since
Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.

STRUCTURED INVESTMENTS. The Fund may invest a portion of its assets in
"structured investments" which are interests in entities organized and operated
for the purpose of restructuring the investment characteristics of other debt
securities. This type of restructuring involves the deposit with or purchase by
an entity of debt securities (such as mortgages, bank loans or Brady Bonds) and
the issuance by that entity of one or more classes of securities, backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued securities to
create different investment characteristics such as varying maturities, payment
priorities and interest rate provisions.

PRIVATE PLACEMENTS. The Fund may invest in income securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded in the OTC secondary market.
In many cases, privately placed securities will be subject to contractual or
legal restrictions on transfer. As a result of the absence of a public trading
market, privately placed securities may in turn be less liquid and more
difficult to value than publicly traded securities. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. Certain of the Fund's direct investments,
particularly in emerging foreign markets, may include investments in smaller,
less seasoned companies, which may involve greater risks. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group.

INDEXED INCOME SECURITIES. The Fund may invest in income securities that are
indexed to certain specific foreign currency exchange rates, interest rates or
other reference rates. The terms of such securities provide that their principal
amount is adjusted upwards or downwards (but ordinarily not below zero) at
maturity to reflect changes in the exchange rate between two currencies (or
other rates) while the obligations are outstanding.

OTHER INVESTMENT PRACTICES

AND RISK FACTORS

17
<PAGE> 89

various interest rate transactions such as swaps, caps, floors or collars and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currency or currency
futures. Collectively, all of the above are referred to as "Strategic
Transactions." The Fund generally seeks to use Strategic Transactions as a risk
management or hedging technique to seek to protect against possible adverse
changes in the market value of securities held in or to be purchased for the
Fund's portfolio, protect the Fund's unrealized gains, facilitate the sale of
certain securities for investment purposes, protect against changes in currency
exchange rates, manage the effective maturity or duration of the Fund's
portfolio, or establish positions in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. The Fund may use
Strategic Transactions to enhance potential gain, although no more than 5% of
the Fund's total assets will be committed to certain Strategic Transactions for
non-hedging purposes.

Strategic Transactions have risks including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Fund's investment adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of such Strategic Transactions may result
in losses greater than if they had not been used, require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, limit the amount of appreciation the Fund can realize on
an investment, or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of the imposition of exchange controls, suspension of settlements or the
inability to deliver or receive a specified currency. Money paid by the Fund as
premium and money or other assets placed in margin accounts in connection with
entering into Strategic Transactions are not otherwise available to the Fund for
investment purposes.

OTHER PRACTICES. For cash management and investment purposes, the Fund may
engage in repurchase agreements with banks and broker-dealers in an amount up to
20% of the Fund's total assets. Such transactions are subject to the risk of
default by the other party.

The Fund is authorized to borrow money from banks and engage in reverse
repurchase agreements and dollar rolls in an aggregate amount up to 33 1/3% of
the Fund's total assets (including the amount borrowed) for investment purposes.
The use of such transactions to purchase additional securities is known as
"leverage." Leverage transactions create an opportunity for increased net income
but, at the same time, may increase the volatility of the Fund's net asset value
as a result of fluctuations in market interest rates and increase the risk of
the Fund's portfolio. The principal amount of these transactions is fixed when
the transaction is opened, but the Fund's assets may change in value during the
time these transactions are outstanding. As a result, interest expenses and
other costs from these transactions may exceed the interest income and other
revenues earned from portfolio assets, and the net income of the Fund may be
less than if these transactions were not used. Reverse repurchase agreements are
transactions in which the Fund sells certain securities concurrently with an
agreement to repurchase the same securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on such securities. Dollar rolls are
transactions in which the Fund sells securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period, the Fund forgoes
principal and interest paid on such securities. Reverse repurchase agreements
and dollar rolls involve the risk that the market value of the securities
retained by the Fund may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement.

18
<PAGE> 90

In order to generate additional income, the Fund may lend its portfolio
securities in an amount up to 50% of its total assets to broker-dealers, banks
or other recognized institutional borrowers of securities. Such loans must be
callable at any time and the borrower at all times during the loan must maintain
cash or liquid securities as collateral or provide to the Fund an irrevocable
letter of credit equal in value to at least 100% of the value of the securities
loaned (including accrued interest). During the time portfolio securities are on
loan, the Fund receives any dividends or interest paid on such securities and
may invest the collateral itself or receive an agreed-upon amount of interest
income from the borrower who has delivered the collateral or a letter 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.

The Fund may, from time to time, make short sales of securities it owns or has
the right to acquire through conversion or exchange of other securities it owns.
A short sale is a transaction in which the Fund sells a security it does not own
in anticipation that the market price of that security will decline. A short
sale is "against the box" to the extent that the Fund contemporaneously owns or
has the right to obtain, at no added cost, securities identical to those sold
short. When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale in
order to satisfy its obligation to deliver the security upon conclusion of the
sale. The Fund is obligated to collateralize its obligation to replace the
borrowed security with cash or other liquid securities. The Fund may have to pay
a fee to borrow particular securities and is often obligated to pay over any
payments received on such borrowed securities. If the price of the security sold
short increases between the time of the short sale and the time the Fund
replaces the borrowed security, the Fund will incur a loss; conversely, if the
price declines, the Fund will realize a capital gain. Although the Fund's gain
is limited to the price at which it sold the security short, its potential loss
is theoretically unlimited. The short sale of a security is considered a
speculative investment technique. The market value of the security sold short of
any one issuer will not exceed either 5% of the Fund's total assets or 5% of
such issuer's voting securities. The Fund will not make a short sale, if, after
giving effect to such sale, the market value of all securities sold short
exceeds 25% of the value of its assets or the Fund's aggregate short sales of a
particular class of securities exceeds 25% of the outstanding securities of that
class. The Fund may also make short sales "against the box" without respect to
such limitations.

In order to generate additional income, the Fund may lend its portfolio
securities in an amount up to 50% of its total assets to broker-dealers, major
banks or other recognized institutional borrowers of securities. Such loans must
be callable at any time and the borrower at all times during the loan must
maintain cash or liquid securities as collateral or provide to the Fund an
irrevocable letter of credit equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the Fund
receives any dividends or interest paid on such securities and may invest the
collateral itself or receive an agreed-upon amount of interest income from the
borrower who has delivered the collateral or a letter 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.

Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.

Although the Fund does not intend to engage in substantial short-term trading,
it may sell securities without regard to the length of time they have been held
in order to take advantage of new investment opportunities or yield
differentials or otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had a lower portfolio turnover. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate.

TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, prime commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million, repurchase agreements and in investment grade
corporate debt securities. Under normal

19
<PAGE> 91

market conditions, the potential for income or capital appreciation on these
securities will tend to be lower than the potential for income or capital
appreciation on other securities that could be owned by the Fund. The effect of
taking such a defensive position may be that the Fund does not achieve its
investment objective.

INVESTMENT ADVISORY SERVICES

THE ADVISER. Van Kampen Investment Advisory Corp. is the Fund's investment
adviser (the 'Adviser' or "Advisory Corp."). The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

<TABLE>
<CAPTION>
Average Daily Managed Assets % Per Annum
- ---------------------------------------------------
<S> <C> <C>
First $500 million 0.75 of 1.00%
...................................................
Next $500 million 0.70 of 1.00%
...................................................
Over $1 billion 0.65 of 1.00%
...................................................
</TABLE>

20
<PAGE> 92

fees, the costs of providing reports to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

PORTFOLIO MANAGEMENT. The Fund is managed by Robert J. Hickey, a Vice President
of the Adviser. Mr. Hickey has been primarily responsible for the day-to-day
management of the Fund's portfolio since January 1995. Mr. Hickey joined the
Adviser in 1989 and became Assistant Vice President in January 1993. Mr. Hickey
has been a Vice President of the Adviser and Asset Management since June 1995.

PURCHASE OF SHARES

GENERAL

21
<PAGE> 93

the Board of Trustees. 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.

Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.

The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, once daily as of 5:00 pm Eastern time
on each U.S. business day. Such calculation does not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation.

If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Trustees.

22
<PAGE> 94
responsibility of authorized dealers to transmit orders received by them to
Investor Services so they will be received in a timely manner. Orders of less
than $500 generally are mailed by the authorized dealer and processed at the
offering price next calculated after receipt by Investor Services.

CLASS A SHARES

CLASS A SHARES
SALES CHARGE SCHEDULE

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

CLASS B SHARES

SALES CHARGE SCHEDULE

23
<PAGE> 95

years from the time of any payment for the purchase of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital 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 purchase Class A
Shares.

CONVERSION FEATURE

24
<PAGE> 96

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

QUANTITY DISCOUNTS

A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.

25
<PAGE> 97

OTHER PURCHASE PROGRAMS

(1) Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

26
<PAGE> 98

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.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

27
<PAGE> 99

REDEMPTION OF
SHARES

28
<PAGE> 100

copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares, contact the telephone transaction line at (800)
421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.

DISTRIBUTIONS FROM THE FUND

29
<PAGE> 101

reinvested in additional shares of the Fund at net asset value unless the
shareholder instructs otherwise.

SHAREHOLDER SERVICES

30
<PAGE> 102

which shares are exchanged, unless otherwise specified by the shareholder. In
order to establish a systematic withdrawal plan for the new account or reinvest
dividends from the new account into another fund, however, an exchanging
shareholder must submit a specific request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
may modify, restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.

FEDERAL INCOME TAXATION

Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) 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 (which are the excess of net long-term capital gains over net
short-term capital losses) as capital gains dividends, if any, are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares, and regardless of how long the shares of the Fund have been
held by such shareholders. Such capital gain dividends may be taxed at different
rates depending on how long the Fund held the securities. The Fund expects that
its distributions will consist primarily of ordinary income and capital gains
dividends. Distributions in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder (assuming
such shares are held as a capital asset). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or December, payable to shareholders of record on a specified date in
such month and paid during January of the following year will be treated as
having been distributed by the Fund and received by the shareholders on the
December 31st prior to the date of payment. The Fund will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.

31
<PAGE> 103

32
<PAGE> 104

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Class A Shares Class B Shares
Year Ended June 30, Year Ended June 30,
From
December 31,
1993
Nine (Commencement Nine
Months of Investment Months
Ended Operations) Ended
March 31, to June 30, March 31,
1999 1998 1997 1996 1995 1994 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $12.778 $12.065 11.704 $11.975 $14.300 $12.779 $12.069
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment
Income............... 0.973.. 1.019 1.013 0.657 0.566 0.878 0.920
Net Realized and
Unrealized Gain/
Loss................. (.489) 0.714 0.446 0.272 (2.391) (.491) 0.717
------- ------- ------- ------- ------- ------- ------- ------- -------

Total from Investment
Operations............. 0.484 1.733 1.459 0.929 (1.825) 0.387 1.637
------- ------- ------- ------- ------- ------- ------- ------- -------

Less:
Distributions from and
in Excess of Net
Investment Income.... 0.976 1.020 1.098 0.793 0.500 0.880 0.927
Return of Capital
Distributions........ -0-.... -0- -0- 0.407 -0- -0- -0-
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions...... 0.976 1.020 1.098 1.200 0.500 0.880 0.927
------- ------- ------- ------- ------- ------- ------- ------- -------

Net Asset Value, End of
the Period............. $12.286 $12.778 $12.065 $11.704 $11.975 $12.286 $12.779
======= ======= ======= ======= ======= ======= ======= ======= =======

Total Return(a).......... 3.89% 14.92% 12.92% 8.46% (12.83%)** 3.11% 13.98%
Net Assets at End of the
Period (In millions)... $45.3 $43.8 $33.8 $29.6 $24.5 $76.2 $76.2
Ratio of Expenses to
Average Net Assets*.... 1.68% 1.81% 1.84% 1.98% 1.88% 2.44% 2.57%
Ratio of Interest Expense
to Average Net
Assets................. 1.69% 1.99% 2.27% 2.38% .96% 1.69% 1.98%
Ratio of Net Investment
Income to Average Net
Assets*................ 7.72% 8.12% 8.34% 5.88% 9.27% 6.96% 7.33%
Portfolio Turnover....... 523% 474% 343% 253% 114%** 523% 474%

* If certain expenses had not been assumed by the Adviser, Total Return would have been lower and the ratios would have
been as follows:

Ratio of Operating
Expenses to Average
Net Assets......... 1.78% 1.86% 1.92% N/A N/A 2.54% 2.61%
Ratio of Net
Investment Income
to Average Net
Assets............. 7.63% 8.07% 8.26% N/A N/A 6.86% 7.28%

<CAPTION>
Class B Shares Class C Shares
Year Ended June 30, Year Ended June 30,
From From
December 31, December 31,
1993 1993
(Commencement Nine (Commencement
of Investment Months of Investment
Operations) Ended Operations)
to June 30, March 31, to June 30,
1996 1995 1994 1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $11.706 $11.968 $14.300 $12.768 $12.059 $11.699 $11.966 $14.300
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment
Income............... 0.926 0.585 0.515 0.876 0.913 0.944 0.598 0.509
Net Realized and
Unrealized Gain/
Loss................. 0.443 0.245 (2.392) (.490) 0.723 0.422 0.227 (2.388)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations............. 1.369 0.830 (1.877) 0.386 1.636 1.366 0.825 (1.879)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less:
Distributions from and
in Excess of Net
Investment Income.... 1.006 0.722 0.455 0.880 0.927 1.006 0.722 0.455
Return of Capital
Distributions........ -0- 0.370 -0- -0- -0- -0- 0.370 -0-
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions...... 1.006 1.092 0.455 0.880 0.927 1.006 1.092 0.455
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $12.069 $11.706 $11.968 $12.274 $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(a).......... 12.06% 7.62% (13.21%)** 3.03% 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the
Period (In millions)... $61.9 $52.6 $46.4 $3.9 $3.8 $3.1 $1.7 $2.1
Ratio of Expenses to
Average Net Assets*.... 2.59% 2.68% 2.63% 2.44% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense
to Average Net
Assets................. 2.26% 2.38% .96% 1.69% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment
Income to Average Net
Assets*................ 7.58% 5.30% 8.48% 6.96% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover....... 343% 253% 114%** 523% 474% 343% 253% 114%**
* If certain expenses h
been as follows:
Ratio of Operating
Expenses to Average
Net Assets......... 2.67% N/A N/A 2.54% 2.61% 2.66% N/A N/A
Ratio of Net
Investment Income
to Average Net
Assets............. 7.50% N/A N/A 6.87% 7.27% 7.41% N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable

See Financial Statements and Notes thereto.

33
<PAGE> 105

APPENDIX -- DESCRIPTION

OF SECURITIES RATINGS

STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:

2. Nature of and provisions of the obligation:

1. LONG-TERM DEBT -- INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.

SPECULATIVE GRADE

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

A- 1

<PAGE> 106

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A- 2

<PAGE> 107

3. PREFERRED STOCK

The preferred stock ratings are based on the following considerations:

ii. Nature of, and provisions of, the issuer.

iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.

BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.

CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.

C: A preferred stock rated "C" is a nonpaying issue.

D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.

MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's)

A- 3

<PAGE> 108

rating symbols and their meanings (as published by Moody's Investors Service)
follows:

1. LONG-TERM DEBT

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published in
Moody's publications.

2. SHORT-TERM DEBT

A- 4

<PAGE> 109

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

- -- Leading market positions in well-established industries.

- -- High rates of return on funds employed.

- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- -- Broad margins is earnings coverage of fixed financial charges and high
internal cash generation.

- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.

C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

A- 5

<PAGE> 110

FOR MORE INFORMATION

EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday

DEALERS
For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666

TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833

FUND INFO(R)
For automated telephone services, call (800) 847-2424

WEB SITE
www.vankampen.com

VAN KAMPEN STRATEGIC INCOME FUND

1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Investment Adviser

VAN KAMPEN INVESTMENT ADVISORY CORP.

1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Distributor

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555

Transfer Agent

VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256

Attn: Van Kampen Strategic Income Fund

Custodian

STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713

Attn: Van Kampen Strategic Income Fund

Legal Counsel

SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG LLP

303 East Wacker Drive

Chicago, IL 60601
<PAGE> 111

VAN KAMPEN

STRATEGIC INCOME FUND

PROSPECTUS

, 1999

A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.

You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.

[VAN KAMPEN FUNDS LOGO]

Investment Company Act File No. 811-4629. SIF PRO 7/99

<PAGE> 112

The information in this statement of additional information is not complete and
may be changed. The Fund may not sell these securities until the post- effective
amendment to the registration statement filed with the Securities and Exchange
Commission is effective. This statement of additional information is not a
prospectus. This statement of additional information is not an offer to sell
these securities and is not soliciting an offer to buy these securities.

SUBJECT TO COMPLETION -- DATED MAY 28, 1999

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN

HIGH YIELD FUND

Van Kampen High Yield Fund (the "Fund") is a mutual fund with a primary
investment objective to seek to provide a high level of current income. As a
secondary investment objective, the Fund seeks capital appreciation. The Fund's
management seeks to achieve the investment objectives by investing primarily in
a diversified portfolio of medium- and lower-grade domestic corporate debt
securities.

The Fund is organized as a diversified series of the Van Kampen Trust, an
open-end, management investment company (the "Trust").

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833
for the hearing impaired).

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-4
Strategic Transactions...................................... B-7
Investment Restrictions..................................... B-16
Trustees and Officers....................................... B-18
Investment Advisory Agreement............................... B-29
Other Agreements............................................ B-30
Distribution and Service.................................... B-30
Transfer Agent.............................................. B-34
Portfolio Transactions and Brokerage Allocation............. B-35
Shareholder Services........................................ B-37
Redemption of Shares........................................ B-39
Contingent Deferred Sales Charge-Class A.................... B-39
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-40
Taxation.................................................... B-42
Fund Performance............................................ B-47
Other Information........................................... B-50
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1999.

<PAGE> 113

GENERAL INFORMATION

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust (the "Declaration
of Trust") dated May 10, 1995. The Declaration of Trust permits the Trustees to
create one or more separate investment portfolios and issue a series of shares
for each portfolio, such as the Fund. The Trustees can further sub-divide each
series of shares into one or more classes of shares for each portfolio.

The Trust was originally organized in 1986 under the name Van Kampen
Merritt Trust as a Massachusetts business trust (the "Massachusetts Trust"). The
Massachusetts Trust was reorganized into the Trust under the name Van Kampen
American Capital Trust on July 31, 1995. The Trust was created for the purpose
of facilitating the Massachusetts Trust reorganization into a Delaware business
trust. On July 14, 1998, the Trust adopted its current name.

The Fund was organized in 1986 under the name Van Kampen Merritt High Yield
Fund as a sub-trust of the Massachusetts Trust. The Fund was reorganized as a
series of the Trust under the name Van Kampen American Capital High Yield Fund
on July 31, 1995. On July 14, 1998, the Fund adopted its current name.

Van Kampen Investment Advisory Corp. (the "Adviser" or "Advisory Corp."),
Van Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Invest ments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.

Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment 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 securities lending.

The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.

The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in

B-2
<PAGE> 114

accordance with provisions of the Declaration of Trust. Each class of shares of
the Fund 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. Shares of the Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series and separate votes are taken by each class of a series on
matters affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of 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
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").

In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.

The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

B-3
<PAGE> 115

As of , 1999, 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:

- ------------------------------------

Van Kampen Trust Company acts as custodian for certain employee benefit
plans and individual retirement accounts.

INVESTMENT OBJECTIVES 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.

REPURCHASE AGREEMENTS

The Fund may engage in repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. A repurchase agreement
is a short-term investment in which the purchaser (i.e., the Fund) acquires
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. The Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Trustees. The Fund will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible lack of access to
income on the underlying security during this period; and (c) expenses of
enforcing its rights.

B-4
<PAGE> 116

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 exemptive order from the SEC authorizing
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.

Repurchase agreements are fully collateralized by the underlying debt
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. government, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation.

"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

The Fund may purchase and sell portfolio securities on a "when-issued" and
"delayed delivery" basis. No income accrues to the Fund on securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuation; the value of the securities at delivery may be more or less than
their purchase price, and yields generally available on comparable securities
when delivery occurs may be higher or lower than yields on the securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller, as the case may be, to consummate the transaction, failure by the other
party to complete the transaction may result in the Fund missing the opportunity
of obtaining a price or yield considered to be advantageous. When the Fund is
the buyer in such a transaction, however, it will maintain, in a segregated
account with its custodian, cash or portfolio securities having an aggregate
value equal to the amount of such purchase commitments until payment is made.
The Fund will make commitments to purchase securities on such basis only with
the intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purpose of investment leverage.

REVERSE REPURCHASE AGREEMENTS

The Fund may enter into reverse repurchase agreements with respect to
securities which could otherwise be sold by the Fund. Reverse repurchase
agreements involve sales by the Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities.

B-5
<PAGE> 117

The Fund will establish a segregated account with its custodian in which it
will maintain cash or liquid securities equal in value to its obligations in
respect of reverse repurchase agreements and, accordingly, the Fund will not
treat such obligations as senior securities for purposes of the 1940 Act.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
No more than 5% of the Fund's total assets may be invested in bank borrowings
and reverse repurchase agreements.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend
portfolio securities to broker-dealers and other financial institutions provided
that such loans are at all times secured by cash collateral that is at least
equal to the market value, determined daily, of the loaned securities and such
loans are callable at any time by the Fund. The advantage of such loans is that
the Fund continues to receive the interest or dividends on the loaned
securities, while at the same time earning interest on the collateral which is
invested in short-term obligations. The Fund may pay reasonable finders',
administrative and custodial fees in connection with loans of its securities.
There is no assurance as to the extent to which securities loans can be
effected.

If the borrower fails to maintain the requisite amount of collateral or
return securities borrowed upon proper request, 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. On termination of the loan, the
borrower is required to return the securities to the Fund; any gains or loss in
the market price during the loan would inure to the Fund.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.

PORTFOLIO TURNOVER

B-6
<PAGE> 118

portfolio turnover rate (100% or more) increases the Fund's transaction costs,
including brokerage commissions, and may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover. The
turnover rate will not be a limiting factor, however, if the Adviser deems
portfolio changes appropriate.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Fund's Trustees. Ordinarily, the Fund would invest in restricted
securities only when it receives the issuer's commitment to register the
securities without expense to the Fund. However, registration and underwriting
expenses (which may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the Fund. Restricted securities which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A Securities are liquid include, among other things, a
security's trading history, the availability of reliable pricing information,
the number of dealers making quotes or making a market in such security and the
number of potential purchasers in the market for such security. For purposes
hereof, investments by the Fund in securities of other investment companies will
not be considered investments in restricted securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.

STRATEGIC TRANSACTIONS

The Fund may, but is not required to, use various investment strategies as
described below to earn income, facilitate portfolio management, and mitigate
risks. Such strategies are generally accepted under modern portfolio management
and are regularly used by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

B-7
<PAGE> 119

financial instruments, purchase and sell financial futures contracts and options
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars, and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currency or currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
markets, to protect the Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of the Fund's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities.

The Fund may sell options on securities the Fund owns or has the right to
purchase without additional payments, up to 25% of the Fund's net assets, for
non-hedging purposes. When the Fund sells an option, if the underlying
securities do not increase (in the case of a call option) or decrease (in the
case of a put option) to a price level that would make the exercise of the
option profitable to the holder of the option, the option generally will expire
without being exercised and the Fund will realize as profit the premium received
for such option. When a call option of which the Fund is the writer is
exercised, the option holder purchases the underlying security at the strike
price and the Fund does not participate in any increase in the price of such
securities above the strike price. In addition, the Fund would need to replace
the underlying securities at prices which may not be advantageous to the Fund.
When a put option of which the Fund is the writer is exercised, the Fund will be
required to purchase the underlying securities at the strike price, which may be
in excess of the market value of such securities.

Any or all of these investment techniques may be used at any time and there
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

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hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
these futures contracts and options transactions for hedging should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. Income
earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable.

General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument

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through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only enter into OTC options that have a buy-back provision permitting
the Fund to require the Counterparty close out the option at a formula price
within seven days. The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's ("S&P") or "P-1" from Moody's Investors Service, Inc. ("Moody's") or an
equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO"). 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" the amount of the
Fund's

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obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the
in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on illiquid securities.

If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call or put options on securities, including
U.S. Treasury and agency securities, foreign sovereign debt, mortgage-backed
securities, corporate debt securities, Eurodollar instruments and foreign debt
securities that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets and related futures on such securities, indices,
currencies and futures. All calls sold by the Fund must be "covered" (i.e., the
Fund must own the securities or futures contract subject to the call) or must
meet the asset segregation requirements described below as long as the call is
outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold. In
selling put options, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price above the market price.

General Characteristics of Futures. The Fund may enter into financial
futures contracts or purchase or sell put and call options on such futures as a
hedge against anticipated interest rate or currency market changes, for duration
management and for risk management purposes. Futures generally are bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price. The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that 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 and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission ("CFTC") and
will be entered into only for bona fide hedging, risk management (including
duration management) or other portfolio management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of options on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on

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a futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price nor that
delivery will occur.

The Fund will not enter into a futures contract or related option (except
for closing transactions) for other than bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options thereon would exceed 5% of the Fund's
total assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The segregation requirements with
respect to futures contracts and options thereon are described below.

Options on Securities Indices and Other Financial Indices. The Fund also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties rated A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
options) are determined to be of equivalent credit quality by the Adviser.

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generally arise in connection with the purchase or sale of its portfolio
securities or the receipt of income therefrom. Position hedging is entering into
a currency transaction with respect to portfolio security positions denominated
or generally quoted in that currency.

The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to cross-hedging or proxy hedging as described below.

The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which Fund expects to
have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Adviser considers the Austrian schilling is
linked to the German deutschemark (the "D-mark"), the Fund holds securities
denominated in Austrian schillings and the Adviser believes that the value of
schillings will decline against the U.S. dollar, the Adviser may enter into a
contract to sell D-marks and buy dollars. Currency hedging involves some of the
same risks and considerations as other transactions with similar instruments.
Currency transactions can result in losses to the Fund if the currency being
hedged fluctuates in value to a degree or in a direction that is not
anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from other transactions. Because currency control is of great
importance to the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments can be
negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

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Combined Transactions. Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions and multiple
currency transactions (including forward currency contracts), multiple interest
rate transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which the Fund may enter are interest rate, currency and index swaps and the
purchase or sale of related 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, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own 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 fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund may into swaps, caps, floors, collars on either an asset-based or
liability-based basis, depending on whether it is hedging its assets or its
liabilities and will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least
"A" by S&P or Moody's or has an equivalent rating from an NRSRO or is determined
to be of equivalent credit quality by the Adviser. If there is a default by the
Counterparty,

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the Fund may have contractual remedies pursuant to the agreements related to the
transaction. A large number of banks and investment banking firms now act both
as principals and agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

Risks of Strategic Transactions Outside the United States. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate cash or
liquid securities with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate cash or
liquid securities sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by the Fund on an index will require the Fund
to own portfolio securities which correlate with the index or to segregate cash
or liquid securities equal to the excess of the index value over the exercise
price on a current basis. A put option written by the Fund requires the Fund to
segregate cash or liquid securities equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid securities equal to the amount of the Fund's
obligation.

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the net amount. These amounts will equal 100% of the exercise price in the case
of a non cash-settled put, the same as an OCC guaranteed listed option sold by
the Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a call
option on an index at a time when the in-the-money amount exceeds the exercise
price, the Fund will segregate, until the option expires or is closed out, cash
or liquid securities equal in value to such excess. OCC issued and exchange
listed options sold by the Fund other than those above generally settle with
physical delivery, and the Fund will segregate an amount of assets equal to the
full value of the option. OTC options settling with physical delivery, or with
an election of either physical delivery or cash settlement, will be treated the
same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash or liquid
securities.

With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund also may enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions also may be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting securities which is defined by the 1940 Act as the lesser of
(i) 67% or more of the voting securities present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy; or (ii) more than 50% of the Fund's outstanding voting
securities. The percentage limitations contained in the

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restrictions and policies set forth herein apply at the time of purchase of
securities. These restrictions provide that the Fund shall not:

1. Purchase any securities (other than obligations issued or guaranteed by
the U.S. government or by its instrumentalities) if, as a result, more
than 5% of the Fund's total assets (taken at current value) would then
be invested in securities of a single issuer or, if, as a result, the
Fund would hold more than 10% of the outstanding voting securities of an
issuer; except that up to 25% of the Fund's total assets may be invested
without regard to such limitations, and except that the Fund may
purchase securities of other investment companies without regard to such
limitations 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. Invest more than 25% of its assets in a single industry. (Neither the
U.S. government nor any of its agencies or instrumentalities will be
considered an industry for purposes of this restriction.)

3. Borrow money, except for temporary purposes from banks or in reverse
repurchase transactions as described in the Statement of Additional
Information and then in amounts not in excess of 5% of the total asset
value of the Fund, or mortgage, pledge, or hypothecate any assets except
in connection with a borrowing and in amounts not in excess of 10% of
the total asset value of the Fund. Borrowings may not be made for
investment leverage, but only to enable the Fund to satisfy redemption
requests where liquidation of portfolio securities is considered
disadvantageous or inconvenient. In this connection, the Fund will not
purchase portfolio securities during any period that such borrowings
exceed 5% of the total asset value of the Fund. Notwithstanding this
investment restriction, the Fund may enter into "when-issued" and
"delayed delivery" transactions as described in the Prospectus or
herein.

4. Make loans, except that the Fund may purchase or hold debt obligations
in accordance with the investment restrictions set forth in paragraph 1
above, may enter into repurchase agreements, and may lend its portfolio
securities against collateral consisting of cash or of securities issued
or guaranteed by the U.S. government or its agencies, which collateral
is equal at all times to at least 100% of the value of the securities
loaned, including accrued interest.

5. Sell any securities "short", unless at all times when a short position
is open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.

6. Write, purchase, or sell puts, calls or combinations thereof, or
purchase or sell interest rate futures contracts or related options,
except that the Fund may write covered call options with respect to its
portfolio securities and enter into closing purchase transactions with
respect to such options, to a maximum of 25% of its net assets and
except that the Fund may invest in hedging instruments as described in
the Prospectus and the Statement of Additional Information from time to
time.

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7. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.

8. Make investments for the purpose of exercising control or management,
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.

9. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and 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.

10. Invest in interests in oil, gas, or other mineral exploration or
development programs.

11. Purchase or sell real estate, commodities, or commodity contracts,
except for investments in hedging instruments as described in the
Prospectus and this Statement of Additional Information from time to
time.

TRUSTEES AND OFFICERS

The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).

B-18
<PAGE> 130

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
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a 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*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc. and is a member of the Morgan
Stanley Dean Witter Management Committee.
Prior to March of 1999, Director of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, Mr. DeMartini was President
and Chief Operating Officer of Morgan Stanley
Dean Witter Individual Asset Management and
Director of Morgan Stanley Dean Witter Trust
FSB. 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 of the
TCW/DW Funds, Director of the Morgan Stanley
Dean Witter Funds and Trustee/ Director of
each of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice
Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the
Women's Board of the University of Chicago.
Prior to 1996, Trustee of The International
House Board. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>

B-19
<PAGE> 131

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive 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.
Jack E. Nelson............................ President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. and Securities
Investors Protection Corp. ("SIPC").
Trustee/Director of each of the funds in the
Fund Complex.
Don G. Powell*............................ Currently a member of the board of governors
2800 Post Oak Blvd. and executive committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Prior to January 1999, Chairman of
the Investment Company Institute and Chairman
and Director of Van Kampen Investments, the
Advisers, the Distributor, Investor Services,
Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services, Inc., American
Capital Contractual Services, Inc., Van
Kampen Merritt Equity Advisors Corp., Van
Kampen Insurance Agency of Illinois Inc., Van
Kampen System Inc., Van Kampen Trust Company,
Van Kampen Services Inc. and Van Kampen
Exchange Corp. Prior to July 1998, Director
and Chairman of VK/AC Holding, Inc. Prior to
April 1997, Chairman, President and Director
of Van Kampen Merritt Equity Holdings Corp.
Prior to November 1996, President, Chief
Executive Officer and Director of VK/AC
Holding, Inc. Prior to September 1996,
Chairman and Director of McCarthy, Crisanti &
Maffei, Inc. and McCarthy, Crisanti & Maffei
Acquisition Corporation. Prior to July 1996,
Chairman and Director of VSM Inc. and VCJ
Inc., and Chairman, President and Director of
American Capital Shareholders Corporation.
Trustee/Director of each of the funds in the
Fund Complex and Trustee of other funds
advised by the Advisers or Van Kampen
Management Inc.
</TABLE>

B-20
<PAGE> 132

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company, and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Prior to 1998,
Director of Stone Smurfit Container Corp., a
paper manufacturing company. Formerly,
President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc.,
an environmental services company.
Trustee/Director of each of the funds in the
Fund Complex.

Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.

Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.

Paul G. Yovovich.......................... Private investor. Prior to April 1996,
Sears Tower President of Advance Ross Corporation.
233 South Wacker Drive Director of 3Com Corporation, APAC Customer
Suite 9700 Services, Inc. and COMARCO, Inc.
Chicago, IL 60606 Trustee/Director of each of the Funds in the
Date of Birth: 10/29/53 Fund Complex.
</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
current or former positions with Morgan Stanley Dean Witter & Co. or its
affiliates.

B-21
<PAGE> 133

OFFICERS

Messrs. McDonnell, Hegel, Sullivan, Wood, Dalmaso, Martin, Wetherell and
Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555. The Fund's other officers are located at 2800 Post Oak Blvd.,
Houston, TX 77056.

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>

Dennis J. McDonnell.................. Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
President Officer and a Director of the Advisers, Van
Kampen Advisors Inc., and Van Kampen Management
Inc. Prior to July 1998, Director and Executive
Vice President of VK/AC Holding, Inc. Prior to
April 1998, President and Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April
1997, Mr. McDonnell was Director of Van Kampen
Merritt Equity Holdings Corp. Prior to September
1996, Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc. and McCarthy,
Crisanti & Maffei, Inc. and Chairman and Director
of MCM Asia Pacific Company, Limited and MCM
(Europe) Limited. Prior to July 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/Managing
General Partner of other investment companies
advised by the Advisers or Van Kampen Management
Inc.

Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Prior to September 1996, a Director of
McCarthy, Crisanti & Maffei, Inc. Prior to July
1996, Mr. Hegel was Director of VSM Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.

John L. Sullivan..................... Senior Vice President of Van Kampen Investments
Date of Birth: 08/20/55 and the Advisers. Treasurer, Vice President and
Treasurer, Vice President and Chief Chief Financial Officer of each of the funds in
Financial Officer the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Curtis W. Morell..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and certain other
Officer investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-22
<PAGE> 134

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Paul R. Wolkenberg................... Executive Vice President and Director of Van
Date of Birth: 11/10/44 Kampen Investments. Executive Vice President of
Vice President the Advisers and the Distributor. President and
Director of Investor Services. President, Chief
Operating Officer and Director of Van Kampen
Recordkeeping Services Inc. President, Chief
Executive Officer and Director of Van Kampen
Trust Company. Prior to July 1998, Director and
Executive Vice President of VK/AC Holding, Inc.
Vice President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.

Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior
Vice President Vice President and Chief Operating Officer of the
Distributor. Vice President of each of the funds
in the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Tanya M. Loden....................... Vice President of Van Kampen Investments and the
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the
Controller Fund Complex and other investment companies
advised by the Advisers or their affiliates.

Nicholas Dalmaso..................... Vice President, Associate General Counsel and
Date of Birth: 03/01/65 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Advisors Inc. and Van Kampen Management 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-23
<PAGE> 135

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Investor Services,
American Capital Contractual Services, Inc., Van
Kampen Management Inc., Van Kampen Exchange
Corp., Van Kampen Advisors Inc., Van Kampen
Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services
Inc. Prior to July 1998, Senior Vice President,
Deputy General Counsel and Assistant Secretary of
VK/AC Holding, Inc. Prior to April 1998, Senior
Vice President, Deputy General Counsel and
Secretary of Van Kampen Merritt Equity Advisors
Corp. Prior to April 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
1996, Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc. Prior to July
1996, 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.................. Vice President, Associate General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Management Inc. and Van Kampen Advisors 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....................... Vice President of Van Kampen Investments, Van
Date of Birth: 10/16/64 Kampen Management Inc. and the Advisers.
Assistant Treasurer Assistant 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 Vice President of Van Kampen
Date of Birth: 03/30/33 Investments, the Advisers and Van Kampen
Assistant Controller Management Inc. 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 63 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated

B-24
<PAGE> 136

person of Van Kampen Investments, the Advisers or the Distributor (each a "Non-
Affiliated Trustee") is compensated by an annual retainer and meeting fees for
services to the funds in the Fund Complex. Each fund in the Fund Complex (except
the money market series of the Van Kampen Series Fund, Inc.) 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 Van Kampen Series Fund, Inc.)
provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met as more fully described below.

The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex (except the money
market series of the Van Kampen Series Fund, Inc.) on the basis of the relative
net assets of each fund as of the last business day of the preceding calendar
quarter. The compensation of each Non-Affiliated Trustee includes a per meeting
fee from each fund in the Fund Complex (except the money market series of the
Van Kampen Series Fund, Inc.) 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.

Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.

B-25
<PAGE> 137

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Compensation Benefits Benefits from before
before Accrued as the Fund Deferral from
Deferral from Part of Upon Fund
Name(1) the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ $35,691 $60,000 $125,200
Linda Hutton Heagy 3,861 60,000 112,800
R. Craig Kennedy 2,652 60,000 125,200
Jack E. Nelson 18,385 60,000 125,200
Phillip B. Rooney 6,002 60,000 125,200
Dr. Fernando Sisto 68,615 60,000 125,200
Wayne W. Whalen 12,658 60,000 125,200
Paul G. Yovovich(1) 0 60,000 25,300
</TABLE>

- ------------------------------------

(1) Mr. Yovovich joined the Board of Trustees on October 22, 1998 and therefore
does not have a complete fiscal year of information to report in this table.
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 from all series of the Trust with respect to the Trust's fiscal
period ended March 31, 1999. The details of aggregate compensation before
deferral for each series are shown in Table A below. Certain trustees
deferred compensation from the Trust during the fiscal period ended March
31, 1999; the aggregate compensation deferred from all three series of the
Trust is as follows: Mr. Branagan, $ ; Ms. Heagy, $ ; Mr.
Kennedy, $ ; Mr. Nelson, $ ; Mr. Rooney, $ ; Dr. Sisto,
$ ; and Mr. Whalen, $ . The details of amounts deferred for each
series are shown in Table B below. Amounts deferred are retained by the Fund
and earn a rate of return determined by reference to either the return on
the common shares of the Fund or other funds in the Fund Complex as selected
by the respective Non-Affiliated Trustee, with the same economic effect as
if such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from all three series of the Trust as of the
Trust's fiscal period ended March 31, 1999 is as follows: Mr. Branagan,
$ ; Dr. Caruso, $ ; Mr. Gaughan, $ ; Ms. Heagy, $ ;
Mr. Kennedy, $ ; Mr. Lipshie, $ ; Mr. Miller, $ ; Mr. Nelson,
$ ; Mr. Rees, $ ; Mr. Robinson, $ ; Mr. Rooney, $ ;
Dr. Sisto, Mr. Vernon, $ ; and Mr. Whalen, $ . The details of
cumulative

B-26
<PAGE> 138

deferred compensation (including interest) for each series are shown in
Table C. The deferred compensation plan is described above the Compensation
Table.

(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the Funds' respective fiscal years ended in
1998. The retirement plan is described above the Compensation Table.

(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the 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. Each Non-Affiliated Trustee has served as a member of
the Board of Trustees since the year set forth in Table D below.

(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,
1998 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, 1998. 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
$285,825 during the calendar year ended December 31, 1998.

TABLE A

1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund.................. 3/31
Short-Term Global Income Fund.... 3/31
Strategic Income Fund............ 3/31
------ ------ ------ ------ ------ ------ ------ ------
Trust Total....................
</TABLE>

- ------------------------------------

* The Fund recently changed its fiscal year-end from June 30 to March 31.
Accordingly, the information reported in this column represents information
for the nine-month fiscal period ended March 31, 1999.

B-27
<PAGE> 139

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM

THE TRUST AND EACH SERIES

- ------------------------------------

TABLE C

1999 CUMULATIVE COMPENSATION DEFERRED

(PLUS INTEREST) FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
-----------------------------------------------------------------------------

FISCAL
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund..... 3/31
Short-Term Global
Income Fund....... 3/31
Strategic Income
Fund.............. 3/31
------- ------- ------- ------- ------ ------ ------- ------
..................

<CAPTION>
TRUSTEE
-------------------------------------
FORMER TRUSTEES
-------------------------------------
FUND NAME GAUGHAN MILLER REES ROBINSON
--------- ------- ------ ---- --------
<S> <C> <C> <C> <C>
High Yield Fund.....
Short-Term Global
Income Fund.......
Strategic Income
Fund..............
------ ------- ------ -------
..................
</TABLE>

- ------------------------------------

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund..................................... 1995 1995 1993 1986 1997 1995 1986 1998
Short-Term Global Income Fund....................... 1995 1995 1993 1990 1997 1995 1990 1998
Strategic Income Fund............................... 1995 1995 1993 1993 1997 1995 1993 1998
</TABLE>

As of , 1999 the trustees and officers of the Fund as a
group owned less than 1% of the Shares of the Fund.

B-28
<PAGE> 140

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes offices,
necessary facilities and equipment, provides administrative services, and
permits its officers and employees to serve without compensation as trustees of
the Trust or officers of the Fund if elected to such positions. The Fund pays
all charges and expenses of its day-to-day operations, including the
compensation of trustees of the Trust (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser. The 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, gross negligence or reckless disregard of its
obligations. 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
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.75% on the first $500 million of
average daily net assets and 0.65% on the average daily net assets over $500
million.

The Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
that month.

The Advisory Agreement also provides that, in the event the expenses of the
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where the Fund's shares are qualified for sale, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year.

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 a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, the Adviser received $ , $3,298,466 and
$3,011,682, respectively, in advisory fees from the Fund.

B-29
<PAGE> 141

OTHER AGREEMENTS

Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which the Adviser provides accounting services to
the Fund, which include, maintaining the books and records of the Fund,
calculating the Fund's net asset value and coordinating tax compliance and other
regulatory issues. The Fund pays all costs and expenses related to such
services, including all salary and related benefits of accounting personnel, as
well as the overhead and expenses of office space and the equipment necessary to
render such services. The Fund shares together with the other Van Kampen funds
in the cost of providing such services, with 25% of such costs shared
proportionately based on the respective number of classes of securities issued
per fund and the remaining 75% of such cost based proportionally on their
respective net assets per fund.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Advisory Corp. received $ , $42,000 and $24,500,
respectively, in accounting services fees from the Fund.

Legal Services Agreement. The Fund and each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
legal services agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Fund for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equip ment necessary to render the legal services.
Other funds distributed by the Distributor also receive legal services from Van
Kampen Investments. Of the total costs for legal services provided to funds
distributed by the Distributor, one half of such costs are allocated equally to
each fund and the remaining one half of such costs are allocated to specific
funds based on monthly time records.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Van Kampen Investments received $ , $13,000 and
$16,900, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) 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

B-30
<PAGE> 142

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.

<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal period ended March 31, 1999..................... $ $
Fiscal year ended June 30, 1998........................ $653,254 $78,100
Fiscal year ended June 30, 1997........................ $725,021 $92,626
</TABLE>

With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:

CLASS A SHARES SALES CHARGE TABLE

<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.......................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........... 2.00% 2.04% 1.75%
$1,000,000 or more.......................... * * *
- ------------------------------------------------------------------------------------------------
</TABLE>

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.

With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.

Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing

B-31
<PAGE> 143

commission and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C Shares annually commencing in the second year after
purchase.

In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund or other
Van Kampen funds. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its 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 a Fund will receive from such
sale.

Banks are currently prohibited under the Glass-Steagall Act 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.

B-32
<PAGE> 144

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."

For shares sold prior to the July 1, 1987 implementation date of the
Distribution Plan, the financial intermediary was not eligible to receive
compensation pursuant to such Distribution and Service Agreement or Selling
Agreement. To the extent that there remain outstanding shares of the Fund that
were purchased prior to the implementation date of the Distribution Plan, the
percentage of the total average daily net asset value of a class of shares that
may be utilized pursuant to the Distribution and Service Agreement will be less
than the current maximum percentage amount permissible with respect to such
class of shares under the Distribution and Service Agreement.

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 Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the Prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any contingent
deferred sales charges it received. For Class A Shares, to the extent the
Distributor is not fully reimbursed in a given year, there is no carryover of
such unreimbursed amounts to succeeding years. For each of the Class B Shares
and Class C Shares, to the extent the Distributor is not fully reimbursed in a
given year, any unreimbursed expenses for such class will be carried forward and
paid by the Fund in future years so long as such Plans are in effect. Except as
mandated by applicable law, the Fund does not impose any limit with respect to
the number of years into the future that such unreimbursed expenses may be
carried forward (on a Fund level basis). Because such expenses are accounted for
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 March 31, 1999, there were $ and
$ of unreimbursed distribution-related expenses with respect to Class B
Shares and Class C Shares, respectively,

B-33
<PAGE> 145

representing % and % of the Fund's net assets attributable to Class B
Shares and Class C Shares, respectively. If the Plans were terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.

Because the Fund is a series of the Trust, amounts paid to the Distributor
as reimbursement for expenses of one series of the Trust may indirectly benefit
the other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.

For the fiscal period ended March 31, 1999, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $ or % of the
Class A Shares' average daily net assets. Such expenses were paid to reimburse
the Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Class A Share Plans. For the fiscal
period ended March 31, 1999, the Fund's aggregate expenses paid under the Plans
for Class B Shares were $ or % of the Class B Shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $ for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class B Shares of the Fund and
$ for fees paid to financial intermediaries for servicing Class B
shareholders and administering the Class B Share Plans. For the fiscal period
ended March 31, 1999, the Fund's aggregate expenses paid under the Plans for
Class C Shares were $ or % of the Class C Shares' average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $ for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class C Shares of the Fund and
$ for fees paid to financial intermediaries for servicing Class C
shareholders and administering the Class C Share Plans.

The Distributor has entered into an agreement with Merrill Lynch
("Merrill") under which shares of the Fund will be offered pursuant to such
firm's retirement plan alliance program. Trustees and other fiduciaries of
retirement plans seeking to invest in multiple fund families through
broker-dealer retirement plan alliance program should contact Merrill for
further information concerning the program including, but not limited to,
minimum size and operational requirements.

TRANSFER AGENT

The Fund's transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO
64141-9256. During the fiscal period ended March 31, 1999 and the fiscal years
ended June 30, 1998 and 1997 Investor Services received fees aggregating
$ , $458,909 and $431,600, respectively for these services. Prior to
1998, these services were provided at cost plus a profit. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive benchmarks.

B-34
<PAGE> 146

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.

As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on a exchange, which are effected through brokers who
charge a commission for their services.

The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with brokerage firms

B-35
<PAGE> 147

participating in the distribution of the Fund's shares if it reasonably believes
that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considerations on quality of execution and comparable
commission rates, the Adviser may direct an executing broker to pay a portion or
all of any commissions, concessions or discounts to a firm supplying research or
other services or to a firm participating in the distribution of the Fund's
shares.

The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.

Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions paid to
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.

The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

Commissions Paid:

<TABLE>
<CAPTION>
Affiliated Brokers
-------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Fiscal period ended March 31, 1999.......................... $ $ $--
Fiscal year ended June 30, 1998............................. $0 $0 $0
Fiscal year ended June 30, 1997............................. $0 $0 $0
Fiscal 1998 Percentages:
Commissions with affiliate to total commissions........... % 0%
Value of brokerage transactions with affiliate to total
transactions............................................ 0% 0%
</TABLE>

During the fiscal period ended March 31, 1999, the Fund paid $ in
brokerage commissions on transactions totaling $ to brokers selected
primarily on the basis of research services provided to the Adviser.

B-36
<PAGE> 148

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."

INVESTMENT ACCOUNT

Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
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 Investor Services.

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 Funds, c/o Investor Services, PO Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate 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.

RETIREMENT PLANS

Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen 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.

B-37
<PAGE> 149

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 Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.

DIVIDEND DIVERSIFICATION

A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the 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 per
share as of the payable date of the distribution.

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, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual 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 contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.

B-38
<PAGE> 150

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 plans are reinvested in additional shares
at the next determined net asset value per share. 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.

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 contingent deferred sales
charge paid upon such redemption. Such reinstatement is made at the net asset
value per share (without sales charge) next determined after the order is
received, which must be within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.

REDEMPTION OF SHARES

Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) 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 fairly determine
the value of its net assets; or (d) the SEC, by order, so permits.

Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.

CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")

B-39
<PAGE> 151

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.

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 contingent deferred sales
charge. The CDSC-Class B and C is waived on redemptions of Class B Shares and
Class C Shares in the circumstances described below:

REDEMPTION UPON DEATH OR DISABILITY

The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.

In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution 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

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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.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the 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 a 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.

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.

REINVESTMENT OF REDEMPTION PROCEEDS

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.

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REDEMPTION BY ADVISER

The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

TAXATION

FEDERAL INCOME TAXATION

The Trust and each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. 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 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 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.

If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.

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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.

PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, which most likely would have to be distributed to satisfy the 90%
distribution requirement and the distribution requirement for avoiding income
and excise taxes. In most instances it will be very difficult to make this
election due to certain requirements imposed with respect to the election.

As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, the Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between the Fund's adjusted tax
basis in such PFIC stock and its fair market value. Losses will be allowed only
to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. The Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable

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years, unless the Internal Revenue Service ("IRS") consents to revocation of the
election. By making the PFIC Mark-to-Market Election, the Fund could ameliorate
the adverse tax consequences arising from its ownership of PFIC stock, but in
any particular year may be required to recognize income in excess of the
distributions it receives from the PFIC and proceeds from the dispositions of
PFIC stock.

DISTRIBUTIONS

Distributions of the Fund's net investment income are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital gain dividends"), if any, are taxable
to shareholders as long-term capital gains regardless of the length of time
shares of the Fund have been held by such shareholders. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.

The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portion of
the distributions from the Fund may be eligible for the dividends received
deduction for corporations if the Fund receives qualifying dividends during the
year and if certain other requirements of the Code are satisfied.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.

Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.

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or loss. Such income or loss may increase or decrease (or possibly eliminate)
the Fund's income available for distribution. If, under the rules governing the
tax treatment of foreign currency gains and losses, the Fund's income available
for distribution is decreased or eliminated, all or a portion of the dividends
declared by the Fund may be treated for federal income tax purposes as a return
of capital or, in some circumstances, as capital gain. Generally, a
shareholder's tax basis in Fund shares will be reduced to the extent that an
amount distributed to such shareholder is treated as a return of capital.

SALE OF SHARES

The sale of shares (including transfers in connection with a redemption or
repurchase of shares) 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. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates" below. Any loss recognized upon a
taxable disposition of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends received with
respect to such shares. For purposes of determining whether shares have been
held for six months or less, the holding period is suspended for any periods
during which the shareholder's risk of loss is diminished as a result of holding
one or more other positions in substantially similar or related property or
through certain options or short sales.

CAPITAL GAINS RATES

Non-U.S. Shareholders. A shareholder who is not (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
under the laws of the United States or any state thereof, (iii) an estate, the
income of which is subject to United States federal income taxation regardless
of its source or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
fiduciaries who have the authority to control all substantial decisions of the
trust (a "Non-U.S. Shareholder") generally will be subject to withholding of
United States federal income tax at a 30% rate (or lower applicable treaty rate)
on dividends from the Fund (other than capital gain dividends) that are not
"effectively connected" with a United States trade or business carried on by
such shareholder. Accordingly, investment in the Fund is likely to be
appropriate for a Non-U.S. Shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such United States
withholding tax.

Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may

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nonetheless be subject to backup withholding on capital gain dividends and gross
proceeds paid to them upon the sale of their shares. See "Backup Withholding"
below.

If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.

The United States Treasury Department has issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 2000. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares of the Fund.

The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.

Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with its correct taxpayer
identification number, (ii) the IRS notifies the Fund that the shareholder has
failed to properly report certain interest and dividend income to the IRS and to
respond to notices to that effect or (iii) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above.

The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.

GENERAL

The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax

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consequences of purchasing, holding and disposing of shares, as well as the
effects of state, local and foreign tax law and any proposed tax law changes.

FUND PERFORMANCE

From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one-year, five-year and ten-year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.

The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes the maximum sales charge for Class A Shares);
that all income dividends or capital gains distributions during the period are
reinvested in Fund shares at net asset value; and that any applicable contingent
deferred sales charge has been paid. The Fund's total return will vary depending
on market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and distributions paid by
the Fund or to reflect the fact no 12b-1 fees were incurred prior to July 1,
1987.

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.

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge with respect to
the contingent deferred sales charge imposed at the time of redemption were
reflected, it would reduce the performance quoted.

In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement) and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other

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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. Total return figures for Class A shares include the
maximum sales charge; total return figures for Class B Shares and Class C Shares
include any applicable contingent deferred sales charge. Because of the
differences in sales charges and distributions fees, the total returns for each
class of shares will differ.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.

The Fund seeks to remain fully invested and diversified across many
industries to achieve consistent long-term performance. From time to time
marketing materials may provide a portfolio manager update, an Adviser update or
discuss general economic conditions and outlooks. The Fund's marketing materials
may also show the Fund's asset class diversification, top five sectors, ten
largest holdings and other Fund asset structures. The top 10 holdings of the
Fund may also be listed in marketing pieces. Materials may also mention how Van
Kampen Investments believes the Fund compares relative to other Van Kampen
funds. Materials may also discuss the Dalbar Financial Services study from 1984
to 1994 which examined investor cash flow into and out of all types of mutual
funds. The ten year study found the investors who bought mutual fund shares and
held such shares outperformed investors who bought and sold. The Dalbar study
conclusions were consistent regardless if shareholders purchased their funds in
direct or sales force distribution channels. The study showed that investors
working with a professional representative have tended over time to earn higher
returns than those who invested other than with a professional representative.
The Fund may also be marketed on the internet.

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In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce the
Fund's performance. The Fund will include performance data for each class of
shares of the Fund in any advertisement or information including performance
data of the Fund.

The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return.

The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.

CLASS A SHARES

The Fund's average annual total return, assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
March 31, 1999 was %, (ii) the five-year period ended March 31, 1999 was
%, (iii) the ten-year period ended March 31, 1999 was % and (iv) the
approximately twelve-year, nine-month period since June 27, 1986, commencement
of distribution for Class A Shares of the Fund, through March 31, 1999 was .

The Class A Shares cumulative non-standardized total return, including
payment of the maximum sales charge, with respect to the Class A Shares from its
inception to March 31, 1999 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to March 31, 1999 was %.

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CLASS B SHARES

The Class B Shares cumulative non-standardized total return, including
payment of the contingent deferred sales charge, with respect to the Class B
Shares from its inception to March 31, 1999 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class B Shares from
its inception to March 31, 1999 was %.

CLASS C SHARES

The average annual total return, assuming payment of the contingent
deferred sales charge, for Class C Shares of the Fund for (i) the one-year
period ended March 31, 1999 was %, (ii) the five-year, period ended
was %, and (iii) the approximately five-year,
seven-month period since August 13, 1993, the commencement of distribution for
Class C Shares of the Fund, through March 31, 1999 was %.

The Class C Shares cumulative non-standardized total return, including
payment of the contingent deferred sales charge, with respect to the Class C
Shares from its inception to March 31, 1999 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class C Shares from
its inception to March 31, 1999 was %.

These results are based on historical earnings and asset value fluctuations
and are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objective and policies as well as
the risks incurred in the Fund's investment practices.

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 West 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.

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INDEPENDENT ACCOUNTANTS

KPMG LLP, 303 East Wacker Drive, Chicago, Illinois 60601, the independent
accountants for the Fund, performs an annual audit of the Fund's financial
statements.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

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SUBJECT TO COMPLETION -- DATED MAY 28, 1999

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN

SHORT-TERM GLOBAL INCOME FUND

Van Kampen Short-Term Global Income Fund (the "Fund") is a mutual fund with
an investment objective to seek a high level of current income, consistent with
prudent investment risk. The Fund's management seeks to achieve the investment
objective by investing primarily in a global portfolio of investment grade
quality debt securities denominated in various currencies and multi-national
currency units and maintaining a dollar-weighted average portfolio duration of
not more than three years.

The Fund is organized as a non-diversified series of the Van Kampen Trust,
an open-end, management investment company (the "Trust").

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-4
Strategic Transactions...................................... B-22
Investment Restrictions..................................... B-31
Trustees and Officers....................................... B-33
Investment Advisory Agreement............................... B-43
Other Agreements............................................ B-44
Distribution and Service.................................... B-45
Transfer Agent.............................................. B-49
Portfolio Transactions and Brokerage Allocation............. B-49
Shareholder Services........................................ B-51
Redemption of Shares........................................ B-54
Contingent Deferred Sales Charge-Class A.................... B-54
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-54
Taxation.................................................... B-56
Fund Performance............................................ B-62
Other Information........................................... B-65
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1999.

<PAGE> 164

GENERAL INFORMATION

The Fund was organized in 1990 under the name Van Kampen Merritt Short-Term
Global Income Fund as a sub-trust of the Massachusetts Trust. The Fund was
reorganized as a series of the Trust under the name Van Kampen American Capital
Short-Term Global Income Fund on July 31, 1995. On July 14, 1998, the Fund
adopted its current name.

Van Kampen Investment Advisory Corp. (the "Adviser" or "Advisory Corp."),
Van Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.

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expenses and has exclusive voting rights with respect to its distribution fee.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and separate votes are taken by each class of a series on matters
affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.

As of , 1999, 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:

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<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER , SHARES OWNERSHIP
-------------------------- ------------ -------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company,......................
2800 Post Oak Blvd.
Houston, Texas 77056
J.C. Bradford & Co. Cust FBO...................
Mary A. Murphy
330 Commerce St.
Nashville, TN 37201-1899
Davenport & Co. LLC FBO........................
Rountree Construction Co. Inc.
Attn James R. Rountree
P.O. Box 5369
Suffolk, VA 23435-0369
Davenport & Co. LLC FBO........................
Ronald D. Foster TSTEE
Bowman Foster & Assoc. PC PSP
U/A DTD 5/27/96
4 Koger Ctr. Ste. 1
Norfolk, VA 23802-4110
J.C. Bradford & Co. Cust FBO...................
Mary Alice Murphy
330 Commerce St.
Nashville, TN 37201-1899
Donaldson Lufkin Jenrette Securities Corp.,
Inc. ........................................
P.O. Box 2062
Jersey City, NJ 07303-2052
</TABLE>

Van Kampen Trust Company acts as custodian for certain employee benefit
plans

and individual retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

REPURCHASE AGREEMENTS

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maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible lack of access to
income on the underlying security during this period; and (c) expenses of
enforcing its rights.

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.

"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

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transactions, it will do so for the purpose of acquiring securities for the
Fund's portfolio consistent with the Fund's investment objective and policies
and not for the purpose of investment leverage.

REVERSE REPURCHASE AGREEMENTS

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to broker-dealers and other financial institutions provided
such loans are at all times secured by collateral that is at least equal to the
market value, determined daily, of the loaned securities and such loans are
callable at any time by the Fund. The advantage of such loans is that the Fund
continues to receive the interest or dividends on the loaned securities, while
at the same time earning interest on the collateral which is invested in
short-term obligations. The Fund may pay reasonable finders', administrative and
custodial fees in connection with loans of its securities. There is no assurance
as to the extent to which securities loans can be effected.

If the borrower fails to return the borrowed securities or 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. On termination of the loan, the borrower is required to return
the securities to the Fund; any gains or loss in the market price during the
loan would inure to the Fund.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be

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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.

PORTFOLIO TURNOVER

The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. The
Fund's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Fund's portfolio excluding all securities whose maturities at acquisition
were one year or less) is shown in the table of "Financial Highlights" in the
Prospectus. A high portfolio turnover rate (100% or more) increases the Fund's
transaction costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Adviser deems portfolio changes appropriate.

ILLIQUID SECURITIES

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DURATION

Duration is a measure of the expected life of a debt security that was
developed as an alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final maturity
and call features into one 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. However, "term to maturity" measures only the time
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 measure of the expected life of a debt security on a present value basis
expressed in years. It measures the length of the time interval between the
present and the time when the interest and principal payments are scheduled (or
in the case of a callable bond, expected to be received), weighing them by the
present value of the cash to be received at each future point in time. For any
debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity, and for zero coupon issues,
duration and term to maturity are equal. In general, the lower the coupon rate
of interest or the longer the maturity, or the lower the yield-to-maturity of 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. 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 the duration is the case
of mortgage pass-through securities. The stated final maturity of such
securities is generally 30 years, but current prepayment rates are more critical
in determining the securities' interest rate exposure. In these and other
similar situations, the Adviser will use more sophisticated analytical
techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.

NON-DIVERSIFICATION

The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"). If a Fund qualified
as a regulated investment company under the Code, it will be relieved of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. In order to qualify, among other requirements, the Fund must limit
its investments so that, at the close of each calendar quarter, (i) not more
than 25% of the market value of the Fund's total assets are invested in
securities of a single issuer (other than the U.S. government, its agencies and
instrumentalities), and (ii) at least 50% of the market value of its total
assets is invested in cash, securities of the U.S. government, its agencies and
instrumentalities and other securities limited in respect of any one issuer to
an amount not greater than 5% of the market value of the Fund's total assets and
not more than 10% of the outstanding voting securities of such issuer. Since the
Fund, as a non-diversified investment company, may invest in a smaller number of
individual issuers than a diversified investment company, an investment in the
Fund may, under

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certain circumstances, present greater risks to an investor than an investment
in a diversified company.

EUROPEAN ECONOMIES

In recent years there have been two key issues influencing the investment
environment and economic conditions of Europe: the creation of the single market
and the emergence of Eastern European economies. Both of these factors have
helped European companies by opening up new markets for growth.

In connection with efforts to create a single market, on January 1, 1999,
eleven of the fifteen member countries of the European Union began conversion of
their existing sovereign currencies to a new common currency, the euro. For the
first three years, the euro will be a phantom currency (only an accounting
entry). Euro notes and coins will begin circulating in year 2002. The euro is
expected to reshape financial markets, banking systems and monetary policies in
Europe and other parts of the world. Financial transactions and market
information, including share quotations and company accounts, in participating
countries will be denominated in euros. Monetary policy for participating
countries will be uniformly managed by a new central bank, the European Central
Bank (ECB).

Although the initial phase of the introduction of the euro has already
occurred, there remain uncertainties that will continue for some time such as
the applicable conversion rate and whether the payment, valuation and
operational systems of banks and financial institutions will operate reliably;
the ability of clearing and settlement systems to process transactions; the
effects of the euro on European financial and commercial markets; and the effect
of new legislation and regulations to address euro-related issues. The process
of implementing the euro may likely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax consequences. The transition
to the euro is likely to have a significant impact on fiscal and monetary policy
in the participating countries and may produce unpredictable effects on trade
and commerce generally. These uncertainties could cause increased volatility in
financial markets would-wide.

Governments across Europe have also initiated major privatization programs
shifting a greater share of economic activity into the more efficient private
sector. Private companies have sought quotation, following the need to compete
in the capital markets, as much as in the market place for their products and
services. Those companies already quoted have begun to appreciate the value of
their being listed. To achieve a high rating on their equity, companies need to
produce transparent accounts, communicate effectively with their shareholders
and manage their businesses and assets to their shareholders' advantage. The
restructuring, management incentives and rationalization of companies has led to
lower wage structures and greater flexibility. This has enabled European
companies to match the competitive cost environment of developing economies.

MORTGAGE-BACKED SECURITIES

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issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC) securities; (ii) those issued by private issuers that
represent an interest in or are collateralized by Mortgage-Backed Securities
issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
Securities without a government guarantee but usually having some form of
private credit enhancement.

Mortgage-Backed Securities may represent an undivided ownership interests
in pools of mortgages. The mortgages backing these securities may include
conventional 30-year fixed rate mortgages, 15-year fixed rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The U.S. government
or the issuing agency guarantees the payment of the interest on and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Fund's shares.
These securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the principal
amounts of such underlying mortgages may generally be prepaid in whole or in
part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-Backed Securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. The remaining maturity of a
Mortgage-Backed Security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Adviser on the basis of
assumed prepayment rates with respect to such mortgages. The remaining expected
average life of a pool of mortgages underlying a Mortgage-Backed Security is a
prediction of when the mortgages will be repaid and is based upon a variety of
factors such as the demographic and geographic characteristics of the borrowers
and the mortgaged properties, the length of time that each of the mortgages has
been outstanding, the interest rates payable on the mortgages and the current
interest rate environment. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.

The yield characteristics of Mortgage-Backed Securities differ from
traditional debt securities. Among the major differences are that interest and
principal prepayments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. As a result, if the Fund
purchases such a security at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Stripped Mortgage-Backed Securities (defined herein)
which are highly sensitive to changes in prepayment and interest rates.

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Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, 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. Mortgage-Backed
Securities, like traditional debt securities, may decrease in value as a result
of increases in interest rates; however, Mortgage-Backed Securities may be more
susceptible to further declines in value during periods of rising interest rates
than traditional debt securities because of extension risk (i.e. rising interest
rates could cause property owners to prepay their mortgages more slowly than
expected when the security was purchased by the Fund which may further reduce
the market value of such security and lengthen the duration of the security). In
addition, Mortgage-Backed Securities tend to benefit less than traditional debt
securities from declining interest rates because of the risk of prepayment (i.e.
underlying mortgages often get prepaid faster than expected in periods of
declining interest rates).

The Fund's yield may also be affected by the yields on instruments in which
the Fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.

During periods of declining interest rates, prepayment of mortgages
underlying Mortgage-Backed Securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Fund reinvests the prepaid amounts in
other income producing securities, the yields of which reflect interest rates
prevailing at the time. Therefore, the Fund's ability to maintain a portfolio of
high-yielding Mortgage-Backed Securities will be adversely affected to the
extent that prepayments of mortgages must be reinvested in securities which have
lower yields than the prepaid Mortgage-Backed Securities. Moreover, prepayments
of mortgages which underlie securities purchased by the Fund at a premium would
result in capital losses.

Guaranteed Mortgage Pass-Through Securities. The Fund may invest in
mortgage pass-through securities representing participation interest in pools of
residential mortgage loans originated by U.S. governmental or private lenders or
guaranteed, to the extent provided in such securities, by the U.S. government or
one of its agencies or instrumentalities. Mortgage pass-through securities
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayment) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicer of the underlying mortgage loans.

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securities issued by the Small Business Administration, Export-Import Bank of
the United States, Federal Housing Administration, Farm Credit Administration,
Federal Home Loan Banks, General Services Administration, U.S. Department of
Transportation, U.S. Department of Housing and Urban Development, and Student
Loan Marketing Association. These securities generally are not backed by the
full faith and credit of the United States.

Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the GNMA, FNMA
and FHLMC mortgage pass-through securities described above and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Private Pass-Throughs constituting ARMS
are backed by a pool of conventional adjustable rate mortgage loans. Since
Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of GNMA, FNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement.

GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or guaranteed by the Veteran's Administration under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any guarantee. In order to meet its obligations
under such guarantee, GNMA is authorized to borrow from the U.S. Treasury with
no limitations as to amount.

GNMA Certificates will represent a pro rata interest in one or more pools
of the following types of mortgage loans: (i) fixed rate level payment mortgage
loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed rate
growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-
to four-family housing units.

FNMA Certificates. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to

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purchase home mortgage loans from many capital market investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total amount
of funds available for housing.

Each FNMA Certificate will entitle the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the U.S. government.

Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed rate loans secured by multifamily projects.

FHLMC Certificates. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the "FHLMC Act"). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily Freddie Mac Certificates.

FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest at the rate provided for by such FHLMC Certificate,
whether or not received. Freddie Mac also guarantees to each registered holder
of a FHLMC Certificate ultimate collection of all principal of the related
mortgage loans, without any offset or deduction, but does not, generally,
guarantee the timely payment of scheduled principal. FHLMC may remit the amount
due on account of its guarantee of collection of principal at any time after
default on an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of a claim by any mortgage insurer, or (iii) the
expiration of any right of redemption, whichever occurs later, but in any event
no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. The obligation of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by the full faith and credit
of the U.S. government.

FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a "FHLMC Certificate group") purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole

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loans and undivided interests in whole loans and participations comprising
another FHLMC Certificate group.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities.
Collateralized mortgage obligations ("CMOs") are debt obligations which are
secured by mortgage loans or other mortgage-backed securities (such collateral
is collectively hereinafter referred to as "Mortgage Assets"). Multiclass
pass-through securities are equity interests in a trust composed of Mortgage
Assets. Unless the context indicates otherwise, all references herein to CMOs
include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs 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. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit (a "REMIC"). All future references to CMOs
shall also be deemed to include REMICs.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," may be issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the underlying Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrues on all classes of a CMO
on a monthly, quarterly or semi-annual basis. The principal of and interest on
the Mortgage Assets may be allocated among the several classes of a series of a
CMO in many ways. By investing in particular tranches of a CMO with specified
cash flows, the Fund may gain more predictability of cash flows than if it had
invested in the underlying Mortgage Assets. Generally, the more predictable the
cash flow of a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities. As part of the process of creating more predictable
cash flows on most of the tranches in a series of CMOs, one or more tranches
generally must be created that absorb most of the volatility in the cash flows
on the underlying Mortgage Assets. The yields on these tranches are generally
higher than prevailing market yields on mortgage-backed securities with similar
average lives. Because of the uncertainty of the cash flows on these tranches,
and the sensitivity thereof to changes in prepayment rates on the underlying
Mortgage Assets, the market prices of and yield on these tranches tend to be
more volatile.

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when market rates of interest decrease, the change in value of inverse floating
CMOs owned by the Fund will have a positive effect on the net asset value of the
Fund and when market rates of interest increase, the change in value of inverse
floating rate CMOs owned by the Fund will have a negative effect on the net
asset value of the Fund. In addition, the extent of increases and decreases in
the net asset value of the Fund in response to changes in market rates of
interest generally will be larger than comparable changes in the net asset value
of the Fund if the Fund held an equal principal amount of a fixed rate CMO
security having similar credit quality, redemption provisions and maturity.

The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date.

In reliance on an SEC interpretation, the Fund's investment in certain
qualifying collateralized mortgage obligations (CMOs), including CMOs that have
elected to be treated as Real Estate Mortgage Investment Conduits (REMICs), are
not subject to the 1940 Act's limitation on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
the CMOs and REMICs must be unmanaged, fixed-asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue redeemable securities,
(c) operate under general exemptive orders exempting them from all provisions of
the 1940 Act, and (d) are not registered or regulated under the 1940 Act as
investment companies. To the extent that the Fund selects CMOs or REMICs that do
not meet the above requirements, the Fund may not invest more than 10% of its
assets in all such entities and may not acquire more than 3% of the voting
securities of any single such entity.

Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities
are derivative multi-class mortgage securities. Stripped Mortgage-Backed
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-Backed Securities issued by parties other than agencies or
instrumentalities of the U.S. government are considered, under current
guidelines of the staff of the SEC, to be illiquid securities.

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ments of principal, the Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially adversely
affected. The market value of such Stripped Mortgage-Backed Securities,
including adjustable rate U.S. government IOs, are subject to greater risk of
fluctuation in response to changes in market interest rates than other
adjustable rate securities, and such greater risk of fluctuation may adversely
affect the ability of the Fund to maintain a relatively stable net asset value.

Types of Credit Support. To lessen the effect of failures by obligors on
underlying mortgages to make payments, certain Mortgage-Backed Securities may
contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Fund will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.

The ratings of securities for which third-party credit enhancement provides
liquidity protection or protection against losses from default are generally
dependent upon the continued creditworthiness of the enhancement provider. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment on the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets. Other
information which may be considered include demographic factors, loan
underwriting practices and general market and economic conditions. Delinquency
or loss in excess of that which is anticipated could adversely affect the return
on an investment in such a security.

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interest rates, including mortgage rates. Commonly utilized indices include, for
example, the One Year Constant Maturity Treasury Index, the London Interbank
Offered Rate (LIBOR), the Federal Home Loan Bank Cost of Funds, the prime rate
and commercial paper rates.

Adjustable rate securities allow the Fund to participate in increases in
interest rates through periodic upward adjustments of the coupon rates of such
securities, resulting in higher yields. During periods of declining interest
rates, however, coupon rates may readjust downward resulting in lower yields to
the Fund. During periods of rising interest rates, changes in the coupon rate of
adjustable rate securities will lag behind changes in the market interest rate,
which may result in such security having a lower value until the coupon resets
to reflect more closely market interest rates. Investors who redeem shares of
the Fund prior to the time the coupon rates of the Fund's portfolio securities
are adjusted could suffer some loss on their investment in the Fund's shares.
Adjustable rate securities typically limit the maximum amount the coupon rate
may be adjusted during any adjustment period, in any one year and during the
term of the security. During periods of significant fluctuations in market rates
of interest the net asset value of the Fund may fluctuate more significantly
since these limits may prevent the Fund's portfolio securities from fully
adjusting to reflect market rates.

The Fund may invest in adjustable rate securities with interest rates that
adjust or vary inversely to changes in market interest rates. Such securities,
which are referred to as "inverse floating obligations," provide opportunities
for high current income, but the market value of such securities may be more
volatile in response to changes in market interest rates. Certain of such
inverse floating obligations have coupon rates that adjust to changes in market
interest rates to a greater degree than the change in the market rate and
accordingly have investment characteristics similar to investment leverage. As a
result, the market value of such inverse floating obligations are subject to
greater risk of fluctuation than other adjustable rate securities which do not
vary inversely to changes in market interest rates, and such greater risk of
fluctuation may adversely affect the ability of the Fund to maintain a
relatively stable net asset value.

ASSET-BACKED SECURITIES

"Asset-Backed Securities" have structural characteristics similar to
Mortgage-Backed Securities but have underlying assets that are not mortgage
loans or interests in mortgage loans. Through the use of trusts and special
purpose corporations, various types of assets, including assets such as
automobile and credit card receivables and home equity loans, have been
securitized in pass-through structures similar to the mortgage pass-through
structures or pay-through structures. In general, these types of loans are of
shorter average life than mortgage loans and are less likely to have substantial
prepayments.

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another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related Asset-Backed Securities. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirement under state laws, the trustee for the holders of
Asset-Backed Securities backed by automobile receivables may not have a proper
security interest in the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

FLOATING AND VARIABLE RATE DEBT SECURITIES

Debt securities may provide for floating or variable rate interest or
dividend payments. The floating or variable rate may be determined by reference
to a known lending rate, such as a bank's prime rate, a certificate of deposit
rate or the London Inter Bank Offered Rate (LIBOR). Alternatively, the rate may
be determined through an auction or remarketing process. The rate may also be
indexed to changes in the values of interest rate or securities indexes,
currency exchange rates or other commodities. The amount by which the rate paid
on an income security may increase or decrease may be subject to periodic or
lifetime caps. Floating and variable rate income securities include derivative
securities whose rates vary inversely with changes in market rates of interest.
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. The Brady
Plan framework contemplates the exchange of commercial bank debt for newly
issued Brady Bonds. 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 recently, and accordingly do not have a
long payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. Brady Bonds issued to date include
bonds issued at 100% of face value of such debt, which carry a below-market
stated rate of interest (generally known as par bonds), bonds issued at a
discount from the face value of such debt (generally known as discount bonds),
bonds bearing an interest rate which increases over time and bonds issued in
exchange for the advancement of new money by existing lenders.

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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. The Fund may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with terms of the Brady Bonds. Many of the Brady Bonds and other income
securities in which the Fund invests are likely to be acquired at a discount.

The Salomon Brothers Brady Bond Index provides a benchmark that can be used
to compare returns of Brady Bonds with returns in other bond markets.

STRUCTURED INVESTMENTS

The Fund may invest a portion of its assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of other debt securities, including debt securities issued by
foreign governments. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
(such as commercial 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
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, and the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. The Fund may
invest in a class of Structured Investments that is subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.

RISKS OF INVESTING IN LOWER-GRADE INCOME SECURITIES

The Fund may invest up to 20% of its assets in lower-grade securities,
which securities are commonly known as "junk bonds." Securities which are in the
lower-grade categories generally offer a higher current yield than is offered by
higher-grade securities of similar maturities, but they also generally involve
greater risks, such as greater credit risk, greater market risk and volatility,
greater liquidity concerns and potentially greater manager risk. Investors
should carefully consider the risks of owning shares of a portfolio which
invests in lower-grade securities before investing in the Fund.

Credit risk relates to the issuer's ability to make timely payment of
interest and principal when due. Lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of lower-grade debt securities to
pay interest and to repay principal, to meet projected financial goals or to
obtain additional financing. In the event that an issuer of securities held by
the Fund experiences difficulties in the timely payment of principal and
interest and such issuer seeks to restructure the terms of its borrowings, the
Fund may incur additional expenses and may determine to invest additional assets
with respect to such issuer or the project or

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projects to which the Fund's securities relate. Further, the Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of interest or the repayment of principal on its
portfolio holdings, and the Fund may be unable to obtain full recovery on such
amounts.

Market risk relates to changes in market value of a security that occur as
a result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower-grade securities as compared with higher-grade securities. In
addition, changes in credit risks, interest rates, the credit markets or periods
of general economic uncertainty can be expected to result in increased
volatility in the market price of the lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of lower-grade securities.

The markets for lower-grade securities may be less liquid than the markets
for higher-grade securities. Liquidity relates to the ability of a fund to sell
a security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.

The Fund's investment adviser is responsible for determining the net asset
value of the Fund, subject to the supervision of the Fund's Board of Trustees.
During periods of reduced market liquidity or in the absence of readily
available market quotations for lower-grade municipal securities held in the
Fund's portfolio, the ability of the Fund's investment adviser to value the
Fund's securities becomes more difficult and the judgment

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of the Fund's investment adviser may play a greater role in the valuation of the
Fund's securities due to the reduced availability of reliable objective data.

The Fund may invest in securities not producing immediate cash income when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these concerns
against the expected total returns from such instruments.

The Fund's investments in lower-grade securities may include securities
rated D by S&P or C by Moody's (the lowest-grade assigned, and unrated
securities of comparable quality. Securities assigned, such ratings include
those of companies that are in default or are in bankruptcy or reorganization.
Securities of such companies are regarded by the rating agencies as having
extremely poor prospects of ever attaining any real investment standing and are
usually available at deep discounts from the face values of the instruments. A
security purchased at a deep discount may currently pay a very high effective
yield. In addition, if the financial condition of the issuer improves, the
underlying value of the security may increase, resulting in a capital gain. If
the company defaults on its obligations or remains in default, or if the plan of
reorganization does not provide sufficient payments for debtholders, the deep
discount securities may stop generating income and lose value or become
worthless. The Fund's investment adviser will balance the benefits of deep
discount securities with their risks. While a diversified portfolio may reduce
the overall impact of a deep discount security that is in default or loses its
value, the risk cannot be eliminated.

Many lower-grade debt securities generally are not listed for trading on
any national securities exchange, and many issuers of lower-grade debt
securities choose not to have a rating assigned to their obligations by any
nationally recognized statistical rating organization. As a result, the Fund's
portfolio may consist of a relatively high proportion of unlisted or unrated
securities as compared with an investment company that invests primarily in
higher-grade securities. Unrated securities are usually not as attractive to as
many buyers as are rated securities, a factor which may make unrated securities
less marketable. These factors may have the effect of limiting the availability
of the securities for purchase by the Fund and may also limit the ability of the
Fund to sell such securities at their fair value either to meet redemption
requests or in response to changes in the economy or the financial markets.
Further, to the extent the Fund owns or may acquire illiquid or restricted
lower-grade securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.

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and credit ratings are subject to the risk that the creditworthiness of an
issuer may change and the rating agencies may fail to change such ratings in a
timely fashion. A rating downgrade does not require the Fund to dispose of a
security. The Fund's investment adviser continuously monitors the issuers of
securities held in the Fund. Because of the number of investment considerations
involved in investing in lower-grade securities, achievement of the Fund's
investment objectives may be more dependent upon the investment adviser's credit
analysis than is the case with investing in higher-grade securities.

Special tax considerations are associated with investing in certain
lower-grade securities, such as zero coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute substantially all of its income to its shareholders to
qualify for pass-through treatment under federal income tax law and may,
therefore, have to dispose of its portfolio securities to satisfy distribution
requirements.

STRATEGIC TRANSACTIONS

In the course of pursuing these investment strategies, the Fund may
purchase and sell derivative securities such as exchange-listed and
over-the-counter put and call options on securities, financial futures, equity,
fixed-income and interest rate indices and other financial instruments, purchase
and sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currency or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange markets, to protect the
Fund's unrealized gains in the value of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities.

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such option. When a call option of which the Fund is the writer is exercised,
the option holder purchases the underlying security at the strike price and the
Fund does not participate in any increase in the price of such securities above
the strike price. In addition, the Fund would need to replace the underlying
securities at prices which may not be advantageous to the Fund. When a put
option of which the Fund is the writer is exercised, the Fund will be required
to purchase the underlying securities at the strike price, which may be in
excess of the market value of such securities.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
these futures contracts and options transactions for hedging should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. Income
earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable.

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of the particular types of options discussed in greater detail below. In
addition, many Strategic Transactions involving options require segregation of
Fund assets in special accounts, as described below under "Use of Segregated and
Other Special Accounts."

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close

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before the markets for the underlying financial instruments, significant price
and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only enter into OTC options that have a buy-back provision permitting
the Fund to require the Counterparty to close out the option at a formula price
within seven days. The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.

The Fund may purchase and sell call or put options on securities, including
U.S. Treasury and agency securities, foreign sovereign debt, mortgage-backed
securities, corporate debt securities and Eurodollar instruments and foreign
debt securities that are traded on U.S. and foreign securities exchanges and in
the over-the-counter markets and related futures on such securities, indices,
currencies and futures. All calls sold by the Fund must be "covered" (i.e., the
Fund must own the securities or futures contract subject to the call) or must
meet the asset segregation requirements described below as long as the call is
outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the

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underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold. In selling put options, there is
a risk that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.

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indices and other financial indices are similar to options on a security or
other instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement, i.e., an option on an
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
making up the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

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hedge or to hedge against the dollar. Proxy hedging entails entering into a
forward contract to sell a currency whose changes in value are generally
considered to be linked to a currency or currencies in which some or all of the
Fund's portfolio securities are or are expected to be denominated, and to buy
U.S. dollars. The amount of the contract would not exceed the value of the
Fund's securities denominated in linked currencies. For example, if the Adviser
considers the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in Austrian schillings and the
Adviser believes that the value of schillings will decline against the U.S.
dollar, the Adviser may enter into a contract to sell D-marks and buy dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
If the Fund enters into a currency hedging transaction, the Fund will comply
with the asset segregation requirements described below.

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to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own 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 fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

B-29
<PAGE> 192

different exercise and settlement terms and procedures and margin requirements
than in the United States, and (v) lower trading volume and liquidity.

OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, swaps, caps, floors and collars will generally provide for cash
settlement. As a result, when the Fund sells these instruments it will only
segregate an amount of assets equal to its accrued net obligations, as there is
no requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by the Fund,
or the in-the-money amount plus any sell-back formula amount in the case of a
cash-settled put or call. In addition, when the Fund sells a call option on an
index at a time when the in-the-money amount exceeds the exercise price, the
Fund will segregate, until the option expires or is closed out, cash or liquid
securities equal in value to such excess. OCC issued and exchange listed options
sold by the Fund other than those above generally settle with physical delivery,
and the Fund will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery, or with an election of
either physical delivery or cash settlement, will be treated the same as other
options settling with physical delivery.

B-30
<PAGE> 193

owed at the expiration of an index-based futures contract. Such assets may
consist of cash or liquid securities.

INVESTMENT RESTRICTIONS

1. Purchase any securities (other than obligations issued or guaranteed by
the U.S. government, or by its agencies or instrumentalities), if as a
result more than 5% of the Fund's total assets would then be invested
in securities of a single issuer or if as a result the Fund would hold
more than 10% of the outstanding voting securities of any single
issuer; provided that, with respect to 50% of the Fund's assets, the
Fund may invest up to 25% of its assets in the securities of any one
issuer, and except that the Fund may purchase securities of other
investment companies without regard to such limitations 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 money, except from banks for temporary purposes and then in
amounts not in excess of 5% of the total asset value of the Fund, or
mortgage, pledge, or

B-31
<PAGE> 194

hypothecate any assets except in connection with a borrowing and in
amounts not in excess of 10% of the total asset value of the Fund.
Borrowings may not be made for investment leverage, but only to enable
the Fund to satisfy redemption requests where liquidation of portfolio
securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings, including the Fund's commitments pursuant
to reverse repurchase agreements, exceed 5% of the total asset value of
the Fund (after giving effect to the amount borrowed). Notwithstanding
this investment restriction, the Fund may enter into when issued and
delayed delivery transactions as described in the Prospectus.

3. Make loans, except to the extent the obligations the Fund may invest in
are considered to be loans, through loans of portfolio securities or
the acquisition of securities subject to repurchase agreements.

4. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with transactions described under the
caption "Investment Objective and Policies" in the Prospectus nor short
term credits in connection with the clearance of transactions are
considered the purchase of a security on margin.

5. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures contracts
or related options, except to the extent that the hedging transactions
described under the heading "Investment Objective and Policies" in the
Prospectus would be deemed to be any of the foregoing transactions.

6. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.

7. Make investments for the purpose of exercising control or participation
in management, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time or (iii) an
exemption or other relief from the provisions of the 1940 Act.

8. The Fund may not invest in securities issued by other investment
companies except as part of a merger, reorganization or other
acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time or (iii) an
exemption or other relief from the provisions of the 1940 Act.

9. Invest in oil, gas or mineral leases or in equity interests in oil, gas
or other mineral exploration or development programs.

10. Purchase or sell real estate, commodities or commodities contracts
except to the extent that hedging instruments the Fund may invest in
are considered to be commodities or commodities contracts.

B-32
<PAGE> 195

TRUSTEES AND OFFICERS

TRUSTEES

Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------

<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a 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.
</TABLE>

B-33
<PAGE> 196

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc. and is a member of the Morgan
Stanley Dean Witter Management Committee.
Prior to March of 1999, Director of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, Mr. DeMartini was President
and Chief Operating Officer of Morgan Stanley
Dean Witter Individual Asset Management and
Director of Morgan Stanley Dean Witter Trust
FSB. 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 of the
TCW/DW Funds, Director of the Morgan Stanley
Dean Witter Funds and Trustee/ Director of
each of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice
Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the
Women's Board of the University of Chicago.
Prior to 1996, Trustee of The International
House Board. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive 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-34
<PAGE> 197

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. and Securities
Investors Protection Corp. ("SIPC").
Trustee/Director of each of the funds in the
Fund Complex.
Don G. Powell*............................ Currently a member of the board of governors
2800 Post Oak Blvd. and executive committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Prior to January 1999, Chairman of
the Investment Company Institute and Chairman
and Director of Van Kampen Investments, the
Advisers, the Distributor, Investor Services,
Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services, Inc., American
Capital Contractual Services, Inc., Van
Kampen Merritt Equity Advisors Corp., Van
Kampen Insurance Agency of Illinois Inc., Van
Kampen System Inc., Van Kampen Trust Company,
Van Kampen Services Inc. and Van Kampen
Exchange Corp. Prior to July 1998, Director
and Chairman of VK/AC Holding, Inc. Prior to
April 1997, Chairman, President and Director
of Van Kampen Merritt Equity Holdings Corp.
Prior to November 1996, President, Chief
Executive Officer and Director of VK/AC
Holding, Inc. Prior to September 1996,
Chairman and Director of McCarthy, Crisanti &
Maffei, Inc. and McCarthy, Crisanti & Maffei
Acquisition Corporation. Prior to July 1996,
Chairman and Director of VSM Inc. and VCJ
Inc., and Chairman, President and Director of
American Capital Shareholders Corporation.
Trustee/Director of each of the funds in the
Fund Complex and Trustee of other funds
advised by the Advisers or Van Kampen
Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company, and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Prior to 1998,
Director of Stone Smurfit Container Corp., a
paper manufacturing company. Formerly,
President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc.,
an environmental services company.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>

B-35
<PAGE> 198

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.

- ------------------------------------

B-36
<PAGE> 199

OFFICERS

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>

B-37
<PAGE> 200

B-38
<PAGE> 201

B-39
<PAGE> 202

B-40
<PAGE> 203

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

- ------------------------------------

B-41
<PAGE> 204

deferred compensation (including interest) for each series are shown in
Table C. The deferred compensation plan is described above the Compensation
Table.

TABLE A

1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund....................... 3/31
Short-Term Global Income Fund......... 3/31
Strategic Income Fund................. 3/31
------ ------ ------ ------ ------ ------ ------ ------
Trust Total.........................
</TABLE>

- ------------------------------------

B-42
<PAGE> 205

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM

THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund....................... 3/31
Short-Term Global Income Fund......... 3/31
Strategic Income Fund................. 3/31
------ ------ ------ ------ ------ ------ ------ ------
Trust Total.........................
</TABLE>

- ------------------------------------

TABLE C

1999 CUMULATIVE COMPENSATION DEFERRED

(PLUS INTEREST) FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
-----------------------------------------------------------------------------

FISCAL
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund....... 3/31
Short-Term Global
Income Fund......... 3/31
Strategic Income
Fund................ 3/31
------- ------- ------- ------- ------ ------ ------- -------
Trust Total.........

<CAPTION>
TRUSTEE
-------------------------------------
FORMER TRUSTEES
-------------------------------------
FUND NAME GAUGHAN MILLER REES ROBINSON
--------- ------- ------ ---- --------
<S> <C> <C> <C> <C>
High Yield Fund.......
Short-Term Global
Income Fund.........
Strategic Income
Fund................
------ ------- ------ -------
Trust Total.........
</TABLE>

- ------------------------------------

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund............................... 1995 1995 1993 1986 1997 1995 1986 1998
Short-Term Global Income Fund................. 1995 1995 1993 1990 1997 1995 1990 1998
Strategic Income Fund......................... 1995 1995 1993 1993 1997 1995 1993 1998
</TABLE>

As of , 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.

INVESTMENT ADVISORY AGREEMENT

B-43
<PAGE> 206

statistical and financial information to formulate and implement the Fund's
investment objectives. The Adviser also furnishes offices, necessary facilities
and equipment, provides administrative services, and permits its officers and
employees to serve without compensation as trustees of the Trust or officers of
the Fund if elected to such positions. The Fund pays all charges and expenses of
its day-to-day operations, including the compensation of trustees of the Trust
(other than those who are affiliated persons of the Adviser, Distributor or Van
Kampen Investments), the charges and expenses of legal counsel and independent
accountants, distribution fees, service fees, custodian fees, the costs of
providing reports to shareholders, and all other ordinary business expenses not
specifically assumed by the Adviser. The 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, gross negligence or reckless
disregard of its obligations.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, the Adviser received $ , $434,761 and $605,689,
respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

B-44
<PAGE> 207

Van Kampen funds in the cost of providing such services, with 25% of such costs
shared proportionately based on the respective number of classes of securities
issued per fund and the remaining 75% of such cost based proportionally on their
respective net assets per fund.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Advisory Corp. received $ , $13,400 and $7,300,
respectively, in accounting services fees from the Fund.

Legal Services Agreement. The Fund and each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
legal services agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Fund for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.

During the fiscal period ended March 31, 1998 and the fiscal years ended
June 30, 1998 and 1997, Van Kampen Investments received $ , and $9,600 and
$15,300, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

B-45
<PAGE> 208

commissions on the sale of shares of the Fund for the last three fiscal periods
are shown in the chart below.

<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal period ended March 31, 1999..................... $ $
Fiscal year ended June 30, 1998........................ $ 2,983 $239
Fiscal year ended June 30, 1997........................ $16,240 $694
</TABLE>

With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:

CLASS A SHARES SALES CHARGE TABLE

<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000........................... 3.25% 3.36% 3.00%
$25,000 but less than $250,000.............. 2.75% 2.83% 2.50%
$250,000 but less than $500,000............. 1.75% 1.78% 1.50%
$500,000 but less than $1,000,000........... 1.50% 1.52% 1.25%
$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 contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.

With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 3.00% on Class B Shares and 1.00% on Class C Shares.

B-46
<PAGE> 209

reallow to any authorized dealer that sponsors sales contests or recognition
programs conforming to criteria established by the Distributor, or participates
in sales programs sponsored by the Distributor, an amount not exceeding the
total applicable sales charges on the sales generated by the authorized dealer
at the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Fund. Also, the Distributor in its
discretion may from time to time, pursuant to objective criteria established by
the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Fund or other Van Kampen funds.
Fees may include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives for meetings
or seminars of a business nature. In some instances additional compensation or
promotional incentives may be offered to brokers, dealers or financial
intermediaries that have sold or may sell significant amounts of shares during
specified periods of time. The Distributor may provide additional compensation
to Edward D. Jones & Co. or an affiliate thereof based on a combination of its
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 a Fund will receive from such sale.

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through 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-47
<PAGE> 210

For the fiscal period ended March 31, 1999, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $ or 0.25% of the Class A
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Class A Share Plans. For the fiscal
period ended March 31, 1999, the Fund's aggregate

B-48
<PAGE> 211

expenses paid under the Plans for Class B Shares were $ or 1.00% of the
Class B Shares' average daily net assets. Such expenses were paid to reimburse
the Distributor for the following payments: $ for commissions and
transaction fees paid to financial intermediaries in respect of sales of Class B
Shares of the Fund and $ for fees paid to financial intermediaries for
servicing Class B shareholders and administering the Class B Share Plans. For
the fiscal period ended March 31, 1999, the Fund's aggregate expenses paid under
the Plans for Class C Shares were $ or 1.00% of the Class C Shares'
average daily net assets. Such expenses were paid to reimburse the Distributor
for the following payments: $ for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class C Shares of the Fund and
$ for fees paid to financial intermediaries for servicing Class C
shareholders and administering the Class C Share Plans.

TRANSFER AGENT

The Fund's transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO
64141-9256. During the fiscal period ended March 31, 1999, and the fiscal years
ended June 30, 1998 and 1997, Investor Services received fees aggregating
$ , $133,400 and $185,200, respectively for these services. Prior to
1998, these services were provided at cost plus a profit. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

Transactions in debt securities generally made by the Fund are principal
transactions at net prices with little or no brokerage costs. Such securities
are normally purchased directly from the issuer or in the over-the-counter
market from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers include a spread or markup to the dealer between the bid and asked price.
Sales to dealers are effected at bid prices. The Fund may also purchase certain
money market instruments directly from an issuer, in which case no commissions
or discounts are paid, or may purchase and sell listed bonds on an exchange,
which are effected through brokers who charge a commission for their services.

B-49
<PAGE> 212

the best net price. There are many instances when, in the judgment of the
Adviser, more than one firm can offer comparable execution services. In
selecting among such firms, consideration may be given to those firms which
supply research and other services in addition to execution services. The
Adviser is authorized to pay higher commissions to brokerage firms that provide
it with investment and research information than to firms which do not provide
such services if the Adviser determines that such commissions are reasonable in
relation to the overall services provided. No specific value can be assigned to
such research services which are furnished without cost to the Adviser. Since
statistical and other research information is only supplementary to the research
efforts of the Adviser to the Fund and still must be analyzed and reviewed by
its staff, the receipt of research information is not expected to reduce its
expenses materially. The investment advisory fee is not reduced as a result of
the Adviser's receipt of such research services. Services provided may include
(a) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; (b) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with the Fund. The Adviser also may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Fund, the Adviser or the Distributor and with brokerage firms
participating in the distribution of the Fund's shares if it reasonably believes
that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considerations on quality of execution and comparable
commission rates, the Adviser may direct an executing broker to pay a portion or
all of any commissions, concessions or discounts to a firm supplying research or
other services or to a firm participating in the distribution of the Fund's
shares.

B-50
<PAGE> 213

a comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.

The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

Commissions Paid:

<TABLE>
<CAPTION>
Affiliated Brokers
--------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Fiscal period ended March 31, 1999....................... $ $ $
Fiscal year ended June 30, 1998.......................... $555 $0 $0
Fiscal year ended June 30, 1997.......................... $ 0 $0 $0
Fiscal period ended March 31, 1999 Percentages:
Commissions with affiliate to total commissions........ % %
Value of brokerage transactions with affiliate to total
transactions........................................ % %
</TABLE>

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

B-51
<PAGE> 214

SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE("ACH") DEPOSITS

DIVIDEND DIVERSIFICATION

B-52
<PAGE> 215

requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.

SYSTEMATIC WITHDRAWAL PLAN

REINSTATEMENT PRIVILEGE

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REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")

As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a contingent deferred sales
charge ("CDSC -- Class A Shares") may be imposed on certain redemptions made
within one year of purchase. For purposes of the CDSC-Class A, when shares of
one fund are exchanged for shares of another fund, the purchase date for the
shares of the fund exchanged into will be assumed to be the date on which shares
were purchased in the fund from which the exchange was made. If the exchanged
shares themselves are acquired through an exchange, the purchase date is assumed
to carry over from the date of the original election to purchase shares subject
to a CDSC-Class A rather than a front-end load sales charge. In determining
whether a CDSC-Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")

REDEMPTION UPON DEATH OR DISABILITY

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<PAGE> 217

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.

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

B-55
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NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

REDEMPTION BY ADVISER

The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

TAXATION

FEDERAL INCOME TAXATION

If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gains, 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.

B-56
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In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gains net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gains net income retained by, and subject to federal income tax in
the hands of, the Fund will be treated as having been distributed.

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.

PASSIVE FOREIGN INVESTMENT COMPANIES

The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (i) at least 75% of its gross income is passive income or (ii)
an average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain

B-57
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circumstances, a regulated investment company that holds stock of a PFIC will be
subject to federal income tax on (i) a portion of any "excess distribution"
received on such stock or (ii) any gain from a sale or disposition of such stock
(collectively, "PFIC income"), plus interest on such amounts, even if the
regulated investment company distributes the PFIC income as a taxable dividend
to its shareholders. The balance of the PFIC income will be included in the
regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, which most likely would have to be distributed to satisfy the 90%
distribution requirement and the distribution requirement for avoiding income
and excise taxes. In most instances it will be very difficult to make this
election due to certain requirements imposed with respect to the election.

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 gains 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 gains dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an

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<PAGE> 221

amount equal to the fair market value of the shares received, determined as of
the distribution date. The basis of such shares will equal the fair market value
on the distribution date.

The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund generally will not be eligible for the dividends received deduction for
corporations.

Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Investors may be entitled to claim
U.S. foreign tax credits with respect to such taxes, subject to certain
provisions and limitations contained in the Code. If more than 50% in value of
the Fund's total assets at the close of its fiscal year consists of securities
of foreign issuers, the Fund will be eligible to, and may, file elections with
the IRS pursuant to which shareholders of the Fund will be required to (i)
include their respective pro rata portions of such taxes in their U.S. income
tax returns as gross income, and (ii) treat such respective pro rata portions as
taxes paid by them. Shareholders will be entitled, subject to certain
limitations, to either deduct their respective pro rata portions of such foreign
taxes in computing their taxable incomes or use them as foreign tax credits
against their U.S. federal income taxes. No deduction for such foreign taxes may
be claimed by a shareholder who does not itemize deductions. Each shareholder
will be notified annually whether the foreign taxes paid by the Fund will "pass
through" for that year and, if so, such notification will designate (i) the
shareholder's portion of the foreign taxes paid to each country and (ii) the
portion of dividends that represent income derived from sources within each
country. The amount of foreign taxes for which a shareholder may claim a credit
in any year will be subject to an overall limitation such that the credit may
not exceed the shareholder's U.S. federal income tax attributable to the
shareholder's foreign source taxable income. This limitation generally applies
separately to certain specific categories of foreign source income including
"passive income" which includes, among other types of income, dividends and
interest. The foregoing is only a general description of the foreign tax credit
under current law. Because application of the rules described above depends on
the particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.

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currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gains. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.

SALE OF SHARES

The sale of shares (including transfers in connection with a redemption or
repurchase of shares) 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. For a summary of the tax rates applicable
to capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains 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

NON-U.S. SHAREHOLDERS

A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gains dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Accordingly, investment in the Fund is likely to be appropriate for a Non-U.S.
Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.

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<PAGE> 223

certain other conditions are met). However, certain Non-U.S. Shareholders may
nonetheless be subject to backup withholding on capital gains dividends and
gross proceeds paid to them upon the sale of their shares. See "Backup
Withholding" below.

If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to U.S. federal income tax on a net
basis at the tax rates applicable to U.S. citizens or domestic corporations.
Non-U.S. Shareholders that are corporations may also be subject to an additional
"branch profits tax" with respect to income from the Fund that is effectively
connected with a U.S. trade or business.

The U.S. Treasury Department has issued Treasury regulations generally
effective for payments made after December 31, 1999 concerning the withholding
of tax and reporting for certain amounts paid to nonresident alien individuals
and foreign corporations (the "Final Withholding Regulations"). Among other
things, the Final Withholding Regulations may require Non-U.S. Shareholders to
furnish new certification of their foreign status after December 31, 1999.
Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares of the Fund.

BACKUP WITHHOLDING

The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.

B-61
<PAGE> 224

GENERAL

The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.

FUND PERFORMANCE

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge imposed at the
time of redemption were reflected, it would reduce the performance quoted.

B-62
<PAGE> 225

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.

Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. Total return figures for Class A shares include the
maximum sales charge; total return figures for Class B Shares and Class C Shares
include any applicable contingent deferred sales charge. Because of the
differences in sales charges and distribution fees, the total returns for each
class of shares will differ.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gains dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.

From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top five sectors, ten largest holdings and other Fund asset
structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes the Fund compares relative to other Van Kampen funds.
Materials may also discuss the Dalbar Financial Services study from 1984 to 1994
which studied investor cash flow into and out of all types of mutual funds. The
ten year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless of if shareholders purchased their funds in direct or
sales force distribution

B-63
<PAGE> 226

channels. The study showed that investors working with a professional
representative have tended over time to earn higher returns than those who
invested directly. The Fund will also be marketed on the internet.

In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds, with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce the
Fund's performance. The Fund will include performance data for each class of
shares of the Fund in any advertisement or information including performance
data of the Fund.

The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
of 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.

CLASS A SHARES

The Fund's average annual total return assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
March 31, 1999 was %, (ii) the five-year period ended March 31, 1999 was %
and (iii) the approximately eight-year, seven-month period since September 28,
1990, the commencement of distribution for Class A Shares of the Fund, through
March 31, 1999 was %. The Fund's cumulative non-standardized total return,
including payment of the maximum sales charge, with respect to the Class A
Shares from its inception to March 31, 1999 was %. The Fund's cumulative
non-standardized total return, excluding payment of the maximum sales charge,
with respect to the Class A Shares from its inception to March 31, 1999 was %.

B-64
<PAGE> 227

CLASS B SHARES

The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class B Shares of the Fund for (i) the one-year
period ended March 31, 1999 was %, (ii) the five-year period ended March 31,
1999 was % and (iii) the approximately seven-year, eight-month period since
July 22, 1991, the commencement of distribution for Class B Shares of the Fund,
through March 31, 1999 was %. The Fund's cumulative nonstandardized total
return, including payment of the contingent deferred sales charge, with respect
to the Class B Shares from its inception to March 31, 1999 was %. The Fund's
cumulative non-standardized total return, excluding payment of the contingent
deferred sales charge, with respect to the Class B Shares from its inception to
March 31, 1999 was %.

CLASS C SHARES

The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class C Shares of the Fund for (i) the one-year
period ended March 31, 1999 was %, (ii) the five-year period ended March 31,
1999 was % and (iii) the approximately five-year, seven-month period since
August 13, 1993, the commencement of distribution for Class C Shares of the
Fund, through March 31, 1999 was %. The Fund's cumulative nonstandardized
total return, including payment of the contingent deferred sales charge, with
respect to the Class C Shares from its inception to March 31, 1999 was %. The
Fund's cumulative non-standardized total return, excluding payment of the
contingent deferred sales charge, with respect to the Class C Shares from its
inception to March 31, 1999 was %.

OTHER INFORMATION

CUSTODY OF ASSETS

SHAREHOLDER REPORTS

Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.

INDEPENDENT ACCOUNTANTS

KPMG LLP, 303 East Wacker Drive, Chicago, Illinois 60601, the independent
accountants for the Fund, performs an annual audit of the Fund's financial
statements.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

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SUBJECT TO COMPLETION -- DATED MAY 28, 1999

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN

STRATEGIC INCOME FUND

Van Kampen Strategic Income Fund (the "Fund") is a mutual fund with a
primary investment objective to seek to provide its shareholders with high
current income. The Fund has a secondary investment objective of seeking capital
appreciation. The Fund's management seeks to achieve the investment objectives
by investing primarily in a portfolio of income securities selected from the
following market sectors: U.S. government securities; domestic investment grade
income securities; domestic lower-grade income securities; foreign investment
grade income securities; and foreign lower-grade income securities. Investments
are allocated among these sectors based on evaluations of the relative
investment opportunities and investment risks presented by each sector as
determined from time to time by the Fund's investment adviser.

The Fund is organized as a non-diversified series of the Van Kampen Trust,
an open-end, management investment company (the "Trust").

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-4
Strategic Transactions...................................... B-23
Investment Restrictions..................................... B-32
Trustees and Officers....................................... B-34
Investment Advisory Agreement............................... B-44
Other Agreements............................................ B-45
Distribution and Service.................................... B-46
Transfer Agent.............................................. B-50
Portfolio Transactions and Brokerage Allocation............. B-50
Shareholder Services........................................ B-52
Redemption of Shares........................................ B-55
Contingent Deferred Sales Charge-Class A.................... B-55
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-55
Taxation.................................................... B-57
Fund Performance............................................ B-63
Other Information........................................... B-66
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1999.

<PAGE> 229

GENERAL INFORMATION

The Fund was originally organized in 1993 under the name Van Kampen Merritt
Strategic Income Fund as a sub-trust of the Massachusetts Trust. The Fund was
reorganized as a series of the Trust under the name Van Kampen American Capital
Strategic Income Fund on July 31, 1995. On July 14, 1998, the Fund adopted its
current name.

Van Kampen Investment Advisory Corp. (the "Adviser" or "Advisory Corp."),
Van Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.

B-2
<PAGE> 230

The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series and separate votes are taken by each
class of a series on matters affecting an individual class of such series. For
example, a change in investment policy for a series would be voted upon by
shareholders of only the series involved and a change in the distribution fee
for a class of a series would be voted upon by shareholders of only the class of
such series involved. Except as otherwise described in the Prospectus or herein,
shares do not have cumulative voting rights, preemptive rights or any
conversion, subscription or exchange rights.

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<PAGE> 231

As of , 1999, no person was known by the Fund to own
beneficially or to hold of record 5% or more of the outstanding Class A Shares,
Class B Shares or Class C Shares of the Fund, except as follows:

<TABLE>
<CAPTION>
Amount of
Ownership at Class Percentage
Name and Address of Holder , 1999 of Shares Ownership
-------------------------- -------------- --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company....................
2800 Post Oak Blvd.
Houston, TX 77056
Van Kampen TR...............................
IRA R/O Robert J Holuba
2 Hackensack Ave
Kearny, NJ 07032-4511
MLPF&S For the Sole.........................
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive E
3rd Floor
Jacksonville, FL 32246-6484
Edward D. Jones and Co. F/A/O...............
Edward D. Jones & Co. Custodian
FBO Herman L. Durring IRA
EDJ #271-90019-1-5
P.O. Box 2500
Maryland Hts, MO 63043-8500
</TABLE>

- ------------------------------------

Van Kampen Trust Company acts as custodian for certain employee benefit
plans

and individual retirement accounts.

INVESTMENT OBJECTIVES AND POLICIES

REPURCHASE AGREEMENTS

The Fund may engage in repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. The Fund may invest an
amount up to 20% of its total assets in securities subject to repurchase
agreements. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. Repurchase agreements involve
certain risks in the event of default by the other party. The Fund may enter
into repurchase agreements with banks or broker-dealers deemed to be
creditworthy by the Adviser under guidelines approved by the Trustees. The Fund
will not invest in repurchase agreements maturing in more than seven days if any
such investment, together with any other illiquid securities held by the Fund,
would exceed the Fund's limitation on illiquid securities described below. In
the event of the bankruptcy or other default of a seller of a repurchase

B-4
<PAGE> 232

agreement, the Fund could experience both delays in liquidating the underlying
securities and losses including: (a) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible lack of access to income on the underlying security during
this period; and (c) expenses of enforcing its rights.

Repurchase agreements are fully collateralized by the underlying income
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. government, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation.

"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

The Fund may purchase and sell portfolio securities on a "when-issued" and
"delayed delivery" basis. No income accrues to the Fund on securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuation; the value of the securities at delivery may be more or less than
their purchase price, and yields generally available on comparable securities
when delivery occurs may be higher or lower than yields on the securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller, as the case may be, to consummate the transaction, failure by the other
party to complete the transaction may result in the Fund missing the opportunity
of obtaining a price or yield considered to be advantageous. When the Fund is
the buyer in such a transaction, however, it will maintain, in a segregated
account with its custodian, cash or portfolio securities having an aggregate
value equal to the amount of such purchase commitments until payment is made.
The Fund will make commitments to purchase securities on such basis only with
the intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objective and
policies and not for the purpose of investment leverage.

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SHORT SALES

The Fund may make short sales of securities. A short sale is a transaction
in which the Fund sells a security it does not own in anticipation that the
market price of that security will decline. The Fund expects to make short sales
both to obtain capital gains from anticipated declines in securities and as a
form of hedging to offset potential declines in long positions in the same or
similar securities. The short sale of a security is considered a speculative
investment technique.

When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale in
order to satisfy its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer of cash or liquid securities. The
Fund will also be required to deposit similar collateral with its Custodian to
the extent, if any, necessary so that the value of both collateral deposits in
the aggregate is at all times equal to the greater of the price at which the
security is sold short or 100% of the current market value of the security sold
short. Depending on arrangements made with the broker-dealer from which it
borrowed the security regarding payment over of any payments received by the
Fund on such security, the Fund may not receive any payments (including
interest) on its collateral deposited with such broker-dealer.

If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.

The market value of the securities sold short of any one issuer will not
exceed either 5% of the Fund's total assets or 5% of such issuer's voting
securities. The Fund will not make a short sale, if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the value of
its assets or the Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. The Fund may
also make short sales "against the box" without respect to such limitations.

BORROWING, REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

The Fund may borrow for investment purposes. The Fund may borrow money from
banks and engage in reverse repurchase agreements and dollar rolls in an
aggregate amount up to 33 1/3% of the Fund's total assets (including the amount
borrowed). The Fund will borrow only when the Adviser believes that such
borrowings will benefit the Fund. The Fund may also borrow in an amount up to 5%
of the Fund total assets for temporary purposes.

Borrowing by the Fund creates an opportunity for increased net income but,
at the same time, increases the risk of the Fund's portfolio. Leveraging by the
Fund will generally increase the volatility of the Fund's net asset value in
response to fluctuations in market

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interest rates and accordingly may increase the risk of the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
stockholders as dividends will be reduced.

Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on these securities.

The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase,
typically in 30 or 60 days, substantially similar (same type, coupon and
maturity) securities on a specified future date. During the roll period, the
Fund forgoes principal and interest paid on such securities. The Fund is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction.

The Fund will establish a segregated account with its custodian in which it
will maintain cash or liquid securities equal in value to its obligations in
respect of reverse repurchase agreements and dollar rolls and, accordingly, the
Fund will not treat such obligations as senior securities for purposes of the
1940 Act. "Covered rolls" are not subject to these segregation requirements.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by the Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase agreement or
dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend
portfolio securities to broker-dealers and other financial institutions provided
that such loans are at all times secured by collateral that is at least equal to
the market value, determined daily, of the loaned securities and such loans are
callable at any time by the Fund. The advantage of such loans is that the Fund
continues to receive the interest or dividends on the loaned securities, while
at the same time earning interest on the collateral which is invested in
short-term obligations. The Fund may pay reasonable finders', administrative and
custodial fees in connection with loans of its securities. There is no assurance
as to the extent to which securities loans can be effected.

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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. On termination of the loan, the
borrower is required to return the securities to the Fund; any gains or loss in
the market price during the loan would inure to the Fund.

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

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under guidelines adopted by and subject to the supervision of the Fund's Board
of Trustees are not subject to the limitation on illiquid securities. Such 144A
Securities are subject to monitoring and may become illiquid to the extent
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Fund in securities of
other investment companies will not be considered investments in restricted
securities to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.

NON-DIVERSIFICATION

The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"). If the Fund
qualifies as a regulated investment company under the Code, it will be relieved
of any liability for federal income tax to the extent its earnings are
distributed to shareholders. In order to qualify, among other requirements, the
Fund must limit its investments so that, at the close of each calendar quarter,
(i) not more than 25% of the market value of the Fund's total assets are
invested in securities of a single issuer (other than the U.S. government, its
agencies and instrumentalities), and (ii) at least 50% of the market value of
its total assets is invested in cash, securities of the U.S. government, its
agencies and instrumentalities and other securities limited in respect of any
one issuer to an amount not greater than 5% of the market value of the Fund's
total assets and not more than 10% of the outstanding voting securities of such
issuer. Since the Fund, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified investment company, an
investment in the Fund may, under certain circumstances, present greater risks
to an investor than an investment in a diversified company.

EUROPEAN ECONOMIES

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countries will be uniformly managed by a new central bank, the European Central
Bank (ECB).

MORTGAGE-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. There are currently three basic types of
Mortgage-Backed Securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) securities; (ii) those
issued by private issuers that represent an interest in or are collateralized by
Mortgage-Backed Securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
Mortgage-Backed Securities without a government guarantee but usually having
some form of private credit enhancement.

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which the holders receive a share of all interest and principal payments from
the mortgages underlying the securities, net of certain fees. Because the
principal amounts of such underlying mortgages may generally be prepaid in whole
or in part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-Backed Securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. The remaining maturity of a
Mortgage-Backed Security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Adviser on the basis of
assumed prepayment rates with respect to such mortgages. The remaining expected
average life of a pool of mortgages underlying a Mortgage-Backed Security is a
prediction of when the mortgages will be repaid and is based upon a variety of
factors such as the demographic and geographic characteristics of the borrowers
and the mortgaged properties, the length of time that each of the mortgages has
been outstanding, the interest rates payable on the mortgages and the current
interest rate environment. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.

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The guaranteed mortgage pass-through securities that the Fund may invest in
include those issued or guaranteed by GNMA, FNMA and FHLMC. Each of GNMA, FNMA
and FHLMC guarantee timely distributions of interest to security holders. GNMA
and FNMA also guarantee timely distribution of scheduled principal. FHLMC
guarantees only ultimate collection of principal on the underlying loans, which
collection may take up to one year. The Fund may also invest in other agency
securities, including but not limited to securities issued by the Small Business
Administration, Export-Import Bank of the United States, Federal Housing
Administration, Farm Credit Administration, Federal Home Loan Banks, General
Services Administration, U.S. Department of Transportation, U.S. Department of
Housing and Urban Development, and Student Loan Marketing Association. These
securities generally are not backed by the full faith and credit of the United
States.

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level payment mortgage loans; (ii) fixed rate growing equity mortgage loans;
(iii) fixed rate graduated payment mortgage loans; (iv) variable rate mortgage
loans; (v) other adjustable rate mortgage loans; and (vi) fixed rate loans
secured by multifamily projects.

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One or more tranches of a CMO may have coupon rates which reset
periodically at a specified increment over an index such as LIBOR. These
adjustable rate tranches are known as "floating rate CMOs," "inverse floating
CMOs" and "interest only CMOs". Floating rate CMOs may be backed by fixed rate
or adjustable rate mortgages; to date, fixed rate mortgages have been more
commonly utilized for this purpose. Floating rate CMOs are typically issued with
lifetime caps on the coupon rate thereon. These caps, similar to the caps on
adjustable rate mortgages, represent a ceiling beyond which the coupon rate on a
floating rate CMO may not be increased regardless of increases in the interest
rate index to which the floating rate CMO is geared. Inverse floating rate CMOs
pay interest at rates that vary inversely with changes in market rates of
interest and may pay a rate of interest determined by applying a multiple to the
floating rate. Accordingly, when market rates of interest decrease, the change
in value of inverse floating CMOs owned by the Fund will have a positive effect
on the net asset value of the Fund and when market rates of interest increase,
the change in value of inverse floating rate CMOs owned by the Fund will have a
negative effect on the net asset value of the Fund. In addition, the extent of
increases and decreases in the net asset value of the Fund in response to
changes in market rates of interest generally will be larger than comparable
changes in the net asset value of the Fund if the Fund held an equal principal
amount of a fixed rate CMO security having similar credit quality, redemption
provisions and maturity.

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Stripped Mortgage-Backed Securities are generally 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-Backed Securities will have one class receiving a small portion of the
interest and a larger portion of the principal from the mortgage assets, while
the other classes will receive primarily interest and only a small portion 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 yields to maturity
on IOs and POs are especially sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and principal
payments may have a material effect on yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected. The market
value of such Stripped Mortgage-Backed Securities, including adjustable rate
U.S. government IOs, are subject to greater risk of fluctuation in response to
changes in market interest rates than other adjustable rate securities, and such
greater risk of fluctuation may adversely affect the ability of the Fund to
maintain a relatively stable net asset value.

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a portion of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Fund will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.

Adjustable Rate Mortgage-Backed Securities. Adjustable rate Mortgage-Backed
Securities are debt securities having interest rates which are adjusted or reset
at periodic intervals ranging, in general, from one month to three years, based
on a spread over a specific interest rate or interest rate index. There are
three main categories of indices: (i) those based on U.S. government securities,
(ii) those derived from a calculated measure such as a cost of funds index and
(iii) those based on a moving average of interest rates, including mortgage
rates. Commonly utilized indices include, for example, the One Year Constant
Maturity Treasury Index, the London Interbank Offered Rate (LIBOR), the Federal
Home Loan Bank Cost of Funds, the prime rate and commercial paper rates.

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significant fluctuations in market rates of interest the net asset value of the
Fund may fluctuate more significantly since these limits may prevent the Fund's
portfolio securities from fully adjusting to reflect market rates.

ASSET-BACKED SECURITIES

Asset-Backed Securities present certain risks that are not presented by
Mortgage-
Backed Securities, including the risk that these securities do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issues of Asset-Backed Securities backed
by automobile receivables permit the servicers of such receivable to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related Asset-Backed
Securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirement under state laws, the trustee for the
holders of Asset-Backed Securities backed by automobile receivables may not have
a proper security interest in the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

FLOATING AND VARIABLE RATE DEBT SECURITIES

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indexes, currency exchange rates or other commodities. The amount by which the
rate paid on an income security may increase or decrease may be subject to
periodic or lifetime caps. Floating and variable rate income securities include
derivative securities whose rates vary inversely with changes in market rates of
interest. 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.

DISCOUNT, ZERO COUPON SECURITIES AND PAYMENT-IN-KIND SECURITIES

The Fund may invest in securities sold at a substantial discount from their
value at maturity. Such securities include "zero coupon" and payment-in-kind
securities of governmental or private issuers. Zero coupon securities generally
pay no cash interest (or dividends in the case of preferred stock) to their
holders prior to maturity. Payment-in-kind securities allow the issuer, at its
option, to make current interest payments on such securities either in cash or
additional securities. Accordingly, such securities usually are issued and
traded at a deep discount from their face or par value and generally are subject
to greater fluctuations of market value in response to changing interest rates
than securities of comparable maturities and credit quality that pay cash
interest (or dividends in the case of preferred stock) on a current basis.

Federal tax law requires that a holder of a zero coupon security accrue a
portion of the original issue discount on the security and to include the
"interest" on payment-in-kind securities as income each year, even though the
holder receives no interest payment on the security during the year. Federal tax
law also requires that entities such as the Fund which seek to qualify for
pass-through federal income tax treatment as regulated investment companies
distribute substantially all of their net investment income each year, including
non-cash income. Accordingly, although the Fund will receive no payments on its
zero coupon or payment-in-kind securities prior to their maturity or
disposition, it will have income attributable to such securities, and it will be
required, in order to maintain the desired tax treatment, to include in its
dividends an amount equal to the income attributable to its zero coupon and
payment-in-kind securities. Such dividends will be paid from the cash assets of
the Fund, from borrowings or by liquidation of portfolio securities, if
necessary, at a time that the Fund otherwise might not have done so. To the
extent the proceeds from any such dispositions are used by the Fund to pay
distributions, the Fund will not be able to purchase additional income-producing
securities with such proceeds, and as a result the Fund's current income
ultimately may be reduced.

PREMIUM SECURITIES

The Fund may invest in income securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity. The Fund will not
amortize the premium paid for such securities in calculating its net investment
income. As a result, in such cases the purchase of such securities provides the
Fund a higher level of investment income distributable to shareholders on a
current basis than if the Fund purchased securities bearing current market rates
of interest. Although such securities bear coupon rates higher

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than prevailing market rates, because they are purchased at a price in excess of
par value, the yield earned by the Fund on such investments may not exceed
prevailing market yields. If an issuer were to redeem securities held by a Fund
during a time of declining interest rates, the Fund may not be able to reinvest
the proceeds in securities providing the same investment return as the
securities redeemed. If securities purchased by a Fund at a premium are called
or sold prior to maturity, the Fund will recognize a capital loss to the extent
the call or sale price is less than the purchase price. Additionally, the Fund
will recognize a capital loss if it holds such securities to maturity.

CONVERTIBLE SECURITIES

Convertible securities are bonds, debentures, notes, preferred stocks or
other securities that may be converted into or exchanged for a specified amount
of common stock or other security of the same or a different issuer within a
particular period of time and at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
unique investment characteristics in that they generally (i) have higher yields
than common stocks, but lower yields than comparable non-convertible income
securities, (ii) are less subject to fluctuation in value than the underlying
stock since they have fixed income characteristics, and (iii) provide the
potential for capital appreciation if the market price of the underlying common
stock increases. Most convertible securities currently are issued by domestic
companies, although a substantial Eurodollar convertible securities market has
developed, and the markets for convertible securities denominated in local
currencies are increasing.

The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.

Warrants are securities permitting, but not obligating, their holder to
subscribe for other securities or commodities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that they
entitle their holder to purchase, and they do not represent any rights in the
assets of the issuer. As a result, warrants may be considered more speculative
than certain other types of investments.

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PREFERRED STOCK

Preferred stock generally has a preference as to dividends and upon
liquidation over an issuer's common stock but ranks junior to other income
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on income securities, preferred stock dividends
are payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may provide that, in the event the issuer
fails to make a specified number of dividend payments, the holders of the
preferred stock will have the right to elect a specified number of directors to
the issuer's board. Preferred stock also may be subject to optional or mandatory
redemption provisions.

DEPOSITORY RECEIPTS

Some of the securities in the Fund may be in the form of depository
receipts. Depository receipts usually represent common stock or other equity
securities of non-domestic issuers deposited with a custodian in a depository.
The underlying securities are usually withdrawable at any time by surrendering
the depository receipt. Depository receipts are usually denominated in U.S.
dollars and dividends and other payments from the issuer are converted by the
custodian into U.S. dollars before payment to receipt holders. In other respects
depository receipts for foreign securities have the same characteristics as the
underlying securities. Depository receipts that are not sponsored by the issuer
may be less liquid and there may be less readily available public information
about the issuer.

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 income 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. The Brady
Plan framework contemplates the exchange of commercial bank debt for newly
issued Brady Bonds. 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.

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bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders.

The Salomon Brothers Brady Bond Index provides a benchmark that can be used
to compare returns of Brady Bonds with returns in other bond markets.

SOVEREIGN DEBT

Certain countries have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations, large amounts of external debt, balance of payment and trade
difficulties and extreme poverty and unemployment. The issuer of sovereign debt
or the governmental authorities that control the repayment of sovereign debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt. Sovereign debt differs from debt obligations issued
by private entities in that, generally, remedies for defaults must be pursued in
the courts of the defaulting party. Legal recourse is therefore limited.

Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt. Certain emerging market countries have experienced difficulty in
servicing their sovereign debt on a timely basis which has led to defaults on
certain obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds, and
obtaining new credit to finance interest payments. Holders of sovereign debt,
including the Fund, may be requested to participate in the rescheduling of such
debt and to extend further loans to sovereign debtors. The interests of holders
of sovereign debt could be adversely affected in the course of restructuring
arrangements. Furthermore, some of the participants in the secondary market for
sovereign debt may also be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.

OTHER SOVEREIGN-RELATED DEBT

The Fund may invest in other sovereign-related debt obligations, including
obligations of supranational entities. Such investments may include
participations and assignments of sovereign bank debt, restructured external
debt that has not undergone a Brady-style debt exchange, and internal government
debt.

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The sovereign-related income securities in which the Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Sovereign-related income securities also include debt
obligations of supranational entities, which include international organizations
designated or backed by governmental entities to promote economic reconstruction
or development, international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.

Sovereign-related income securities also include income securities of
"quasi-governmental agencies" and income securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit ("ECU"). An ECU
represents specified amounts of the currencies of certain member states of the
European Economic Community. The specific amounts of currencies comprising the
ECU may be adjusted by the Council of Ministers of the European Community to
reflect changes in relative values of the underlying currencies. European
supranational entities, in particular, issue ECU-denominated obligations. Income
securities of quasi-governmental agencies are issued by entities owned by either
a national, state or equivalent government or are obligations of a political
unit that is not backed by the national government's full faith and credit and
general taxing powers.

STRUCTURED INVESTMENTS

The Fund may invest a portion of its assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of other income securities, including income securities issued
by foreign governments. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
(such as commercial 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
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, and the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. The Fund may
invest in a class of Structured Investments that is subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.

STRATEGIC TRANSACTIONS

B-23
<PAGE> 251

B-24
<PAGE> 252

use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of these futures contracts and
options transactions for hedging should tend to minimize the risk of loss due to
a decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. Income earned or deemed to be earned, if
any, by the Fund from its Strategic Transactions will generally be taxable.

B-25
<PAGE> 253

value of the underlying instrument exceeds, in the case of a call option, or is
less than, in the case of a put option, the exercise price of the option) at the
time the option is exercised. Frequently, rather than taking or making delivery
of the underlying instrument through the process of exercising the option,
listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.

B-26
<PAGE> 254

statistical rating organization ("NRSRO"). 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"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on illiquid securities.

B-27
<PAGE> 255

deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of options on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price nor that delivery will
occur.

B-28
<PAGE> 256

B-29
<PAGE> 257

futures is relatively new, and the ability to establish and close out positions
on such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.

B-30
<PAGE> 258

borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least
"A" by S&P or Moody's or has an equivalent rating from an NRSRO or is determined
to be of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. A large number of banks and investment banking firms
now act both as principals and agents utilizing standardized swap documentation.
As a result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation has not
yet been fully developed and, accordingly, they are less liquid than swaps.

B-31
<PAGE> 259

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting

B-32
<PAGE> 260

securities which is defined by the 1940 Act as the lesser of (i) 67% or more of
the voting securities present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy; or (ii) more than 50% of the Fund's outstanding voting securities. The
percentage limitations contained in the restrictions and policies set forth
herein apply at the time of purchase of securities. These restrictions provide
that the Fund shall not:

1. Invest 25% or more of the value of its total assets in any single
industry. (Neither the U.S. government nor any of its agencies or
instrumentalities will be considered an industry for purposes of this
restriction.)

2. Issue senior securities, borrow money or enter into reverse repurchase
agreements or dollar rolls in the aggregate in excess of 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing);
provided that the Fund may, with respect to up to an additional 5% of
its total assets, borrow from and enter into reverse repurchase
agreements and dollar rolls with any entity for temporary purposes. The
Fund will not mortgage, pledge or hypothecate any assets other than in
connection with borrowings, reverse repurchase agreements, dollar rolls,
and Strategic Transactions.

3. Make loans of money or property to any person, except (i) to the extent
the securities in which the Fund may invest are considered to be loans,
(ii) through the loan of portfolio securities or the acquisition of
securities subject to repurchase agreements and (iii) to the extent that
the Fund may lend money or property in connection with maintenance of
the value of, or the Fund's interest with respect to, the securities
owned by the Fund.

4. Buy securities "on margin." Neither the deposit of initial or
maintenance margin in connection with Strategic Transactions, short term
credits as may be necessary for the clearance of transactions nor
borrowing, entering into reverse repurchase agreements or dollar rolls
consistent with investment restriction 2. above is considered the
purchase of a security on margin.

5. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.

6. Make investments for the purpose of exercising control or participation
in management of any company other than a CMO issuer, except to the
extent that exercise by the Fund of its rights under agreements related
to portfolio securities would be deemed to constitute such control or
participation, 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 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.

7. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time or (iii) an exemption or other relief from the
provisions of the 1940 Act.

B-33
<PAGE> 261

8. Invest in oil, gas or mineral leases or in equity interests in oil, gas,
or other mineral exploration or development programs except pursuant to
the exercise by the Fund of its rights under agreements relating to
portfolio securities.

9. Purchase or sell real estate, commodities or commodity contracts, except
to the extent that the securities that the Fund may invest in are
considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under
agreements relating to portfolio securities (in which case the Fund may
liquidate real estate acquired as a result of a default on a mortgage),
and except to the extent that Strategic Transactions the Fund may engage
in are considered to be commodities or commodities contracts.

TRUSTEES AND OFFICERS

TRUSTEES

B-34
<PAGE> 262

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc. and is a member of the Morgan
Stanley Dean Witter Management Committee.
Prior to March of 1999, Director of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, Mr. DeMartini was President
and Chief Operating Officer of Morgan Stanley
Dean Witter Individual Asset Management and
Director of Morgan Stanley Dean Witter Trust
FSB. 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 of the
TCW/DW Funds, Director of the Morgan Stanley
Dean Witter Funds and Trustee/ Director of
each of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice
Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the
Women's Board of the University of Chicago.
Prior to 1996, Trustee of The International
House Board. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive 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-35
<PAGE> 263

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. and Securities
Investors Protection Corp. ("SIPC").
Trustee/Director of each of the funds in the
Fund Complex.
Don G. Powell*............................ Currently a member of the board of governors
2800 Post Oak Blvd. and executive committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Prior to January 1999, Chairman of
the Investment Company Institute and Chairman
and Director of Van Kampen Investments, the
Advisers, the Distributor, Investor Services,
Van Kampen Advisors Inc., Van Kampen
Recordkeeping Services, Inc., American
Capital Contractual Services, Inc., Van
Kampen Merritt Equity Advisors Corp., Van
Kampen Insurance Agency of Illinois Inc., Van
Kampen System Inc., Van Kampen Trust Company,
Van Kampen Services Inc. and Van Kampen
Exchange Corp. Prior to July 1998, Director
and Chairman of VK/AC Holding, Inc. Prior to
April 1997, Chairman, President and Director
of Van Kampen Merritt Equity Holdings Corp.
Prior to November 1996, President, Chief
Executive Officer and Director of VK/AC
Holding, Inc. Prior to September 1996,
Chairman and Director of McCarthy, Crisanti &
Maffei, Inc. and McCarthy, Crisanti & Maffei
Acquisition Corporation. Prior to July 1996,
Chairman and Director of VSM Inc. and VCJ
Inc., and Chairman, President and Director of
American Capital Shareholders Corporation.
Trustee/Director of each of the funds in the
Fund Complex and Trustee of other funds
advised by the Advisers or Van Kampen
Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company, and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Prior to 1998,
Director of Stone Smurfit Container Corp., a
paper manufacturing company. Formerly,
President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc.,
an environmental services company.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>

B-36
<PAGE> 264

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.

- ------------------------------------

B-37
<PAGE> 265

OFFICERS

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>

B-38
<PAGE> 266

B-39
<PAGE> 267

B-40
<PAGE> 268

B-41
<PAGE> 269

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Compensation Benefits Benefits from before
before Accrued as the Fund Deferral from
Deferral from Part of Upon Fund
Name(1) the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
J. Miles Branagan $35,691 $60,000 $125,200
Linda Hutton Heagy 3,861 60,000 112,800
R. Craig Kennedy 2,652 60,000 125,200
Jack E. Nelson 18,385 60,000 125,200
Phillip B. Rooney 6,002 60,000 125,200
Dr. Fernando Sisto 68,615 60,000 125,200
Wayne W. Whalen 12,658 60,000 125,200
Paul G. Yovovich(1) 0 60,000 25,300
</TABLE>

- ------------------------------------

B-42
<PAGE> 270

deferred compensation (including interest) for each series are shown in
Table C. The deferred compensation plan is described above the Compensation
Table.

TABLE A

1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund....................... 3/31
Short-Term Global Income Fund......... 3/31
Strategic Income Fund................. 3/31
------ ------ ------ ------ ------ ------ ------ ------
Trust Total.........................
</TABLE>

- ------------------------------------

B-43
<PAGE> 271

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM

THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund....................... 3/31
Short-Term Global Income Fund......... 3/31
Strategic Income Fund................. 3/31
------ ------ ------ ------ ------ ------ ------ ------
Trust Total.........................
</TABLE>

- ------------------------------------

TABLE C

1999 CUMULATIVE COMPENSATION DEFERRED

(PLUS INTEREST) FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
CURRENT TRUSTEES FORMER TRUSTEES
FISCAL ----------------------------------------------------------------------------- -----------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH GAUGHAN MILLER
--------- --------- -------- ----- ------- ------ ------ ----- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund..... 3/31
Short-Term Global
Income Fund....... 3/31
Strategic Income
Fund.............. 3/31
------- ------- ------- ------- ------ ------ ------- ------ ------ -------
Trust Total.......

<CAPTION>
FORMER TRUSTEES
-----------------
FUND NAME REES ROBINSON
--------- ---- --------
<S> <C> <C>
High Yield Fund.....
Short-Term Global
Income Fund.......
Strategic Income
Fund..............
------ -------
Trust Total.......
</TABLE>

- ------------------------------------

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund............................... 1995 1995 1993 1986 1997 1995 1986 1998
Short-Term Global Income Fund................. 1995 1995 1993 1990 1997 1995 1990 1998
Strategic Income Fund......................... 1995 1995 1993 1993 1997 1995 1993 1998
</TABLE>

As of , the trustees and officers of the Fund as a group
owned less than 1% of the Shares of the Fund.

INVESTMENT ADVISORY AGREEMENT

B-44
<PAGE> 272

Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a
monthly fee payable computed based upon the annual rate applied to the average
daily managed assets of the Fund as follows: 0.75% on the first $500 million of
average daily managed assets; 0.70% on the next $500 of average daily managed
assets and 0.65% on the average daily managed assets over $500 million.

For purposes of determining the investment advisory fee, "daily managed
assets" shall mean the sum of the Fund's assets minus the accrued liabilities
other than the aggregate amount of any borrowings (whether from banks, reverse
repurchase agreements, dollar rolls or otherwise) undertaken by the Fund. The
Fund's average daily managed assets are determined by taking the average of all
of the determinations of the managed 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 Advisory Agreement also provides that, in the event the expenses
of the Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where the Fund's shares are qualified for sale, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, the Adviser received $--, $1,262,844 and $1,132,304,
respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which the Adviser provides accounting services to
the Fund, which

B-45
<PAGE> 273

include, maintaining the books and records of the Fund, calculating the Fund's
net asset value and coordinating tax compliance and other regulatory issues. The
Fund pays all costs and expenses related to such services, including all salary
and related benefits of accounting personnel, as well as the overhead and
expenses of office space and the equipment necessary to render such services.
The Fund shares together with the other Van Kampen funds in the cost of
providing such services, with 25% of such costs shared proportionately based on
the respective number of classes of securities issued per fund and the remaining
75% of such cost based proportionally on their respective net assets per fund.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Advisory Corp. received $ --, $11,600 and $6,200,
respectively, in accounting services fees from the Fund.

Legal Services Agreement. The Fund and each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
legal services agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Fund for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Van Kampen Investments received $ , $16,500 and
$13,600, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

B-46
<PAGE> 274

commissions on the sale of shares of the Fund for the last three fiscal periods
are shown in the chart below.

<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal period ended March 31, 1999..................... $ $
Fiscal year ended June 30, 1998........................ $239,538 $27,505
Fiscal year ended June 30, 1997........................ $214,184 $26,483
</TABLE>

With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:

CLASS A SHARES SALES CHARGE TABLE

* 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 contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.

B-47
<PAGE> 275

B-48
<PAGE> 276

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-49
<PAGE> 277

For the fiscal period ended March 31, 1999, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $ or % of the Class A
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Class A Share Plans. For the fiscal
period ended March 31, 1999, the Fund's aggregate expenses paid under the Plans
for Class B Shares were $ or % of the Class B Shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $ for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class B Shares of the Fund and
$ for fees paid to financial intermediaries for servicing Class B
shareholders and administering the Class B Share Plans. For the fiscal period
ended March 31, 1999, the Fund's aggregate expenses paid under the Plans for
Class C Shares were $ or % of the Class C Shares' average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $ for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class C Shares of the Fund and
$ for fees paid to financial intermediaries for servicing Class C
shareholders and administering the Class C Share Plans.

The Distributor has entered into an agreement with Merrill Lynch
("Merrill") under which shares of the Fund shall be offered pursuant to such
firm's retirement plan alliance program. Trustees and other fiduciaries of
retirement plans seeking to invest in multiple fund families through
broker-dealer retirement plan alliance programs should contact Merrill for
further information concerning such program including, but not limited to,
minimum size and operational requirements.

TRANSFER AGENT

The Fund's transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas City, MO
64141-9256. During the fiscal period ended March 31, 1999 and the fiscal years
ended June 30, 1998 and 1997, Investor Services received fees aggregating
$ , $129,400 and $158,700, respectively for these services. Prior to 1998,
these services were provided at cost plus a profit. Beginning in 1998, the
transfer agency prices are determined through negotiations with the Fund's Board
of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

B-50
<PAGE> 278

or markup to the dealer between the bid and asked price. Sales to dealers are
effected at bid prices. The Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid, or may purchase and sell listed bonds on a exchange, which are
effected through brokers who charge a commission for their services.

B-51
<PAGE> 279

considered by the Adviser are the respective sizes of the Fund and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.

The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

Commissions Paid:

<TABLE>
<CAPTION>
Affiliated Brokers
-------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Fiscal period ended March 31, 1999.......................... $ $ $ --
Fiscal year ended June 30, 1998............................. $19,191 $ $ --
Fiscal year ended June 30, 1997............................. $53,126 $ $
Fiscal period ended March 31, 1999 Percentages:
Commissions with affiliate to total commissions........... % %
Value of brokerage transactions with affiliate to total
transactions............................................ 0% 0%
</TABLE>

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

B-52
<PAGE> 280

shareholder accounts. Except as described in the Prospectus and this Statement
of Additional Information, after each share transaction in an account, the
shareholder receives a statement showing the activity in the account. Each
shareholder who has an account in any of the Participating Funds will receive
statements quarterly from Investor Services 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
Investor Services.

SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE("ACH") DEPOSITS

B-53
<PAGE> 281

DIVIDEND DIVERSIFICATION

SYSTEMATIC WITHDRAWAL PLAN

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

B-54
<PAGE> 282

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 contingent deferred sales charge
paid upon such redemption. Such reinstatement is made at the net asset value per
share (without sales charge) next determined after the order is received, which
must be within 180 days after the date of the redemption. Reinstatement at net
asset value per share is also offered to participants in those eligible
retirement plans held or administered by Van Kampen Trust Company for repayment
of principal (and interest) on their borrowings on such plans.

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")

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 contingent deferred sales
charge.

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The CDSC-Class B and C is waived on redemptions of Class B Shares and Class C
Shares in the circumstances described below:

REDEMPTION UPON DEATH OR DISABILITY

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

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<PAGE> 284

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.

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

REDEMPTION BY ADVISER

The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

TAXATION

FEDERAL INCOME TAXATION

B-57
<PAGE> 285

must comply with certain requirements of the Code relating to, among other
things, the source of its income and diversification of its assets.

In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gains net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gains net income retained by, and subject to federal income tax in
the hands of, the Fund will be treated as having been distributed.

B-58
<PAGE> 286

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.

DISTRIBUTIONS

B-59
<PAGE> 287

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 gains dividends), see "Capital Gains Rates" below.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.

B-60
<PAGE> 288

the foreign tax credit under current law. Because application of the rules
described above depends on the particular circumstances of each shareholder,
shareholders are advised to consult their own tax advisers.

Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain other
gains or losses attributable to currency exchange rate fluctuations are
typically treated as ordinary income or loss. Such income or loss may increase
or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gains. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.

SALE OF SHARES

The sale of shares (including transfers in connection with a redemption or
repurchase of shares) 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. For a summary of the tax rates applicable
to capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains 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

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 or (ii)
20% for capital assets held for more than one year. A special 28% tax rate may
apply to a portion of the capital gain dividends paid by the Fund with respect
to its taxable year ended March 31, 1999. The maximum long-term capital gains
rate for corporations is 35%.

B-61
<PAGE> 289

connected" with a United States trade or business carried on by such
shareholder. Accordingly, investment in the Fund is likely to be appropriate for
a Non-U.S. Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.

Non-effectively connected capital gains dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gains dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.

The United States Treasury Department has issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 1999. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares of the Fund.

B-62
<PAGE> 290

GENERAL

FUND PERFORMANCE

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge imposed at the
time of redemption were reflected, it would reduce the performance quoted.

B-63
<PAGE> 291

Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. Total return figures for Class A shares include the
maximum sales charge; total return figures for Class B Shares and Class C Shares
include any applicable contingent deferred sales charge. Because of the
differences in sales charges and distribution fees, the total returns for each
class of shares will differ.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gains dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.

B-64
<PAGE> 292

which studied investor cash flow into and out of all types of mutual funds. The
ten year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless of if shareholders purchased their funds in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the internet.

In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds, with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce the
Fund's performance. The Fund will include performance data for each class of
shares of the Fund in any advertisement or information including performance
data of the Fund.

The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
of 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.

CLASS A SHARES

B-65
<PAGE> 293

The Fund's cumulative non-standardized total return, including payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to March 31, 1999 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to March 31, 1999 was %.

CLASS B SHARES

The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class B Shares from
its inception to March 31, 1999 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class B Shares from
its inception to March 31, 1999 was %.

CLASS C SHARES

The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class C Shares from
its inception to March 31, 1999 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class C Shares from
its inception to March 31, 1999 was %.

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

B-66
<PAGE> 294

Street Bank and Trust Company, 225 West 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

KPMG LLP, 303 East Wacker Drive, Chicago, Illinois 60601, the independent
accountants for the Fund, performs an annual audit of the Fund's financial
statements.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

B-67
<PAGE> 295

PART C: OTHER INFORMATION

ITEM 23. EXHIBITS:

(a)(1) Agreement and Declaration of Trust(4)

(2) Second Certificate of Amendment dated July 14, 1998 to Agreement
and Declaration of Trust(7)

(3) Second Amended and Restated Certificate of Designation for:

(i) Van Kampen High Yield Fund(7)

(ii) Van Kampen Short-Term Global Income Fund(7)

(iii) Van Kampen Strategic Income Fund(7)

(b) By-Laws(4)

(i) Van Kampen High Yield Fund

(1) Class A Shares(5)

(2) Class B Shares(5)

(3) Class C Shares(5)

(ii) Van Kampen Short-Term Global Income Fund

(1) Class A Shares(4)

(2) Class B Shares(4)

(3) Class C Shares(4)

(iii) Van Kampen Strategic Income Fund

(1) Class A Shares(5)

(2) Class B Shares(5)

(3) Class C Shares(5)

(d) Investment Advisory Agreement for:

(i) Van Kampen High Yield Fund(6)

(ii) Van Kampen Short-Term Global Income Fund(6)

(iii) Van Kampen Strategic Income Fund(6)

(e)(1) Distribution and Service Agreement for:

(i) Van Kampen High Yield Fund(6)

(ii) Van Kampen Short-Term Global Income Fund(6)

(iii) Van Kampen Strategic Income Fund(6)

(2) Form of Dealer Agreement(1)

(3) Form of Broker Fully Disclosed Selling Agreement(1)

(4) Form of Bank Fully Disclosed Selling Agreement(1)

(f)(1) Form of Trustee Deferred Compensation Plan(8)

(2) Form of Trustee Retirement Plan(8)

(g)(1) Custodian Contract(6)

(2) Transfer Agency and Service Agreement(6)

(h)(1) Fund Accounting Agreement(6)

(2) Amended and Restated Legal Services Agreement(6)

(i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois):

(i) Van Kampen High Yield Fund(3)

(ii) Van Kampen Short-Term Global Income Fund(2)

(iii) Van Kampen Strategic Income Fund(3)

(j) Consent of KPMG LLP:

(i) Van Kampen High Yield Fund++

(ii) Van Kampen Short-Term Global Income Fund++

(iii) Van Kampen Strategic Income Fund++

(k) Not Applicable

(l) Letter of Understanding relating to initial capital(5)

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<PAGE> 296

(m)(1) Distribution Plan Pursuant to Rule 12b-1 for:

(i) Van Kampen High Yield Fund(5)

(ii) Van Kampen Short-Term Global Income Fund(4)

(iii) Van Kampen Strategic Income Fund(5)

(2) Form of Shareholder Assistance Agreement(5)

(3) Form of Administrative Services Agreement(5)

(4) Service Plan for:

(i) Van Kampen High Yield Fund(5)

(ii) Van Kampen Short-Term Global Income Fund(4)

(iii) Van Kampen Strategic Income Fund(5)

(n) Financial Data Schedules++

(o) Amended Multi-Class Plan(6)

(p) Power of Attorney+

(z)(1) List of certain investment companies in response to Item
27(a)(8)

(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)(8)

- ---------------

(1) Incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on August 1, 1995.

(2) Incorporated herein by reference to Post-Effective Amendment No. 35 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on August 22, 1995.

(3) Incorporated herein by reference to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on August 30, 1995.

(4) Incorporated herein by reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on April 26, 1995.

(5) Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on October 28, 1996.

(6) Incorporated herein by reference to Post-Effective Amendment No. 42 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on October 28, 1997.

(7) Incorporated herein by reference to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on October 28, 1998.

(8) Incorporated herein by reference to Post-Effective Amendment No. 81 to Van
Kampen Harbor Fund's Registration Statement on Form N-1A, File Numbers
2-12685 and 811-734, filed April 29, 1999.

+ Filed herewith.

++ To be filed by further amendments.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

See the Statement of Additional Information.

ITEM 25. INDEMNIFICATION.

Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.

Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office or (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office,

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<PAGE> 297

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 officers 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, therefor 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in the Prospectus and "Investment
Advisory and Other Services" and "Trustees and Officers" in the Statement of
Additional Information for information regarding the business of Van Kampen
Investment Advisory Corp. (the "Adviser"). For information as to the business,
profession, vocation and employment of a substantial nature of each of the
officers and directors of Van Kampen Investment Advisory Corp., reference is
made to the Adviser's current Form ADV (File No. 801-18161) filed under the
Investment Advisers Act of 1940, as amended, incorporated herein by reference.

ITEM 27. PRINCIPAL UNDERWRITERS.

(a) The sole principal underwriter is Van Kampen Funds Inc., which acts as
principal underwriter for certain investment companies and unit investment
trusts. See Exhibit(z)(1).

(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of Registrant, is the sole principal underwriter for Registrant. The
name, principal business address and positions and offices with Van Kampen Funds
Inc. of each of the directors and officers thereof are set forth in Exhibit
(z)(2). 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.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required by the Registrant 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

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offices located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois
60181-5555, Van Kampen Investors Services Inc., 7501 Tiffany Springs Parkway,
Kansas City, Missouri, 64153, or at the State Street Bank and Trust Company,
1776 Heritage Drive, North Quincy, Massachusetts; (ii) by the Adviser, will be
maintained at its offices, located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook
Terrace, Illinois 60181-5555; and (iii) by Van Kampen Funds Inc., the principal
underwriter, will be maintained at 1 Parkview Plaza, P.O. Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

ITEM 29. MANAGEMENT SERVICES.

Not applicable.

ITEM 30. UNDERTAKINGS.

Not Applicable.

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<PAGE> 299

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN TRUST, 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 28th day of May, 1999.

VAN KAMPEN TRUST

By: /s/ DENNIS J. MCDONNELL

---------------------------------------

Dennis J. McDonnell, President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on May 28, 1999 by the following
persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:

/s/ DENNIS J. MCDONNELL President
- -----------------------------------------------------
Dennis J. McDonnell

Principal Financial Officer:

/s/ JOHN L. SULLIVAN* Treasurer, Vice President and
- ----------------------------------------------------- Chief Financial Officer
John L. Sullivan

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

/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
- ------------
* Signed by Dennis J. McDonnell pursuant to a power of attorney.

/s/ DENNIS J. MCDONNELL May 28, 1999
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>

<PAGE> 300

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 44 TO FORM N-1A

AS SUBMITTED TO THE SECURITIES AND EXCHANGE

COMMISSION ON MAY 28, 1999

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
(p) Power of Attorney
</TABLE>

<PAGE> 1
EXHIBIT (p)

POWER OF ATTORNEY

The undersigned, being officers and trustees of each of the Van Kampen
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 Pennsylvania Tax Free Income Fund being a Pennsylvania business
trust (individually, a "Trust"), and being officers and directors of the Van
Kampen Series Fund, Inc. (the "Corporation"), a Maryland corporation, do
hereby, in the capacities shown below, appoint Dennis J. McDonnell of Oakbrook
Terrace, Illinois, as agent and attorney-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: January 12, 1999

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS J. MCDONNELL President
-------------------------
Dennis J. McDonnell

/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer
------------------------- and Treasurer
John L. Sullivan

/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

/s/ PAUL G. YOVOVICH Trustee/Director
-------------------------
Paul G. Yovovich
</TABLE>
<PAGE> 2
SCHEDULE 1

VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN SMALL CAPITALIZATION FUND
VAN KAMPEN TAX-EXEMPT FUND
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST