VAN KAMPEN TRUST, 485BPOS, 1999-07-29

VAN KAMPEN TRUST
485BPOS, 1999-07-29

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1999

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 46 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 47 [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:

[X] immediately upon filing pursuant to paragraph (b)

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

[ ] on (date) pursuant to paragraph (a)(1)

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

If appropriate check the following box:

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

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

EXPLANATORY NOTE

This Post-Effective Amendment No. 46 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 relating 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 relating 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

Exhibits

The prospectus and statement of additional information the Van Kampen
Managed Short Term Income Fund of the Registrant is incorporated herein by
reference to Post-Effective No. 45 under the Securities Act of 1933, as amended,
which was filed with the Commission on July 21, 1999. This amendment is not
intended to amend the form of prospectus and statement of information
incorporated herein.

<PAGE> 3

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. Any
representation to the contrary is a criminal offense.

This prospectus is dated JULY 29, 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, Policies and Risks......... 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 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> 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.

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 securities involve greater 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. There can be no assurance that the Fund
will achieve its investment objectives.

CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in securities with
medium- and lower-credit quality, it 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 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 generally are more sensitive to negative issuer
developments, such as reduced revenues or increased expenditures, or adverse
economic conditions, such as a recession, than are higher-grade securities.

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

Market risk is often greater among certain types of debt securities, such as
zero-coupon bonds or pay-in-kind securities. As interest rates change, these
securities often fluctuate more in price than traditional debt securities and
therefore 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
......................................................
A 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 of foreign issuers, it may be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues.

RISKS OF USING DERIVATIVE 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. Derivative investments involve risks different from 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.

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 objectives and investment strategies, the Fund may be
appropriate for investors who:

- - Seek a high level of current income and, secondarily, capital appreciation.

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

- - Wish to add to their personal investment portfolio a fund that invests
primarily in medium- and lower-grade domestic corporate 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

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>
'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

As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Credit Suisse First Boston
High Yield Index, 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 any commissions or sales 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> <C> <C>
Van Kampen High
Yield Fund--
Class A Shares -1.45% 6.92% 7.72%
Credit Suisse
First Boston High
Yield Index 0.58% 8.16% 10.74%
.......................................................
Van Kampen High
Yield Fund--
Class B Shares -2.30% 6.08% 6.85%(1)
Credit Suisse
First Boston High
Yield Index 0.58% 8.16% 9.08%(2)
.......................................................
Van Kampen High
Yield Fund--
Class C Shares -2.19% 6.06% 6.39%(3)
Credit Suisse
First Boston High
Yield Index 0.58% 8.16% 8.65%(4)
.......................................................
</TABLE>

Inception dates: (1) 5/17/93, (2) 5/1/93, (3) 8/13/93, (4) 8/1/93.

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. 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>
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>
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 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>
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> <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,

POLICIES AND RISKS

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 the approval of a majority of shareholders 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 for current income and the
potential for capital appreciation sought by the Fund are generally obtainable
from securities in the medium- and lower-credit quality range. Such securities
tend to offer higher yields than higher-grade securities with the same
maturities because the historical conditions of the issuers of such securities
may not have been as strong as those of other issuers. These securities may be
issued in connection with corporate restructurings such as leveraged buyouts,
mergers, acquisitions, debt recapitalization or similar events. These securities
are often issued by smaller, less creditworthy companies or companies with
substantial debt and may include financially troubled companies or companies in
default or in restructuring. Such securities often are subordinated to the prior
claims of banks and other senior lenders. Lower-grade securities are regarded by
the rating agencies as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The ratings of S&P
and Moody's represent their opinions of the quality of the 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 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, regulatory
matters and its potential for capital appreciation. 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

7
<PAGE> 10

monitors the issuers of debt securities held by the Fund.

The Fund may invest in preferred stocks, convertible securities, zero coupon
securities and payment-in-kind securities. The Fund also may invest up to 5% of
its assets in warrants and common stocks. For more information on these types of
investments, see "Investment Objectives and Policies" in the Statement of
Additional Information.

RISKS OF INVESTING IN

MEDIUM- OR LOWER-GRADE SECURITIES

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

Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Medium- and lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of medium- or lower-grade 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

8
<PAGE> 11

could severely disrupt the market for such securities and adversely affect the
value of outstanding securities or the ability of the issuers to repay principal
and interest. Further, the Fund may have more difficulty selling such securities
in a timely manner and at their stated value than would be the case for
securities for which an established retail market does exist.

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

The Fund may invest in securities not producing immediate cash income, including
securities in default, zero coupon securities or pay-in-kind securities, 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 capital appreciation. If the company defaults on its
obligations or remains in default, or if the plan of reorganization does not
provide sufficient payments for debtholders, the deep discount securities may
stop generating income and lose value or become worthless. The Fund's investment
adviser will balance the benefits of deep discount securities with their risks.
While a diversified portfolio may reduce the overall impact of a deep discount
security that is in default or loses its value, the risk cannot be eliminated.

Many medium- and lower-grade debt securities 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 higher portion of unlisted or unrated securities as
compared with an investment company that invests primarily in higher-grade
securities. Unrated securities are usually not as attractive to as many buyers
as are rated securities, a factor which may make unrated securities less
marketable. These factors may have the effect of limiting the availability of
the securities for purchase by the Fund and may also limit the ability of the
Fund to sell such securities at their fair value either to meet redemption
requests or in response to changes in the economy or the financial markets.
Further, to the extent the Fund owns or may acquire illiquid or restricted
medium- or lower-grade securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.

9
<PAGE> 12

issuers of securities held in the Fund. Additionally, since most foreign debt
securities are not rated, the Fund will invest in such securities based on the
Fund's investment adviser's analysis without any guidance from published
ratings. Because of the number of investment considerations involved in
investing in medium- or lower-grade securities and foreign debt 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 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 debt 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> <C> <C>
AAA/Aaa 0.50% 0.00%
.....................................................................
AA/Aa 0.00% 0.00%
.....................................................................
A/A 0.20% 0.60%
.....................................................................
BBB/Baa 2.30% 0.00%
.....................................................................
BB/Ba 22.70% 1.10%
.....................................................................
B/B 64.20% 4.90%
.....................................................................
CCC/Caa 1.60% 1.60%
.....................................................................
CC/Ca 0.10% 0.20%
.....................................................................
C/C 0.00% 0.00%
.....................................................................
D 0.00% 0.00%
.....................................................................
Percentage of
Rated and
Unrated
Securities 91.60% 8.40%
.....................................................................
</TABLE>

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

RISKS OF INVESTING

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. Securities of foreign issuers 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

10
<PAGE> 13

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

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 INVESTMENT PRACTICES

AND RISK FACTORS

WHEN-ISSUED & 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 objectives
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.

11
<PAGE> 14

The Fund generally seeks to use Strategic Transactions as a portfolio 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, manage the effective interest rate exposure of the
Fund, 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 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 Strategic Transactions may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can realize
on an investment, or may cause the Fund to hold a security that 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 of the Fund to deliver or receive a specified currency. Additionally,
amounts paid by the Fund as premium and cash or other assets held in margin
accounts with respect to 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.

OTHER PRACTICES. For cash management 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.

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.

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 receives
the interest earned on collateral which is invested in short-term investments
and receive the proceeds from such investment or receives an agreed-upon amount
of interest income from the borrower who has delivered the 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.

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
a lower portfolio turnover. Increases in the Fund's

12
<PAGE> 15

transaction costs would impact the Fund's performance. 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 current
income or capital appreciation on these securities will tend to be lower than
the potential for current income or capital appreciation on other securities
that could be owned by the Fund. The Fund may not achieve its investment
objectives if it takes a defensive position.

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. These risks may be more acute in
certain foreign countries, particularly emerging markets countries. 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> <C> <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.

13
<PAGE> 16

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.

PORTFOLIO MANAGEMENT. The Fund is managed by a management team led by Robert J.
Hickey, a Vice President of the Adviser. Mr. Hickey joined the Adviser in 1988
and became Assistant Vice President in January 1993. Mr. Hickey has been a Vice
President of the Adviser and Asset Management since June 1995. Peter Ehret has
assisted in the Fund's portfolio management since June 1999. Mr. Ehret has been
working for the Adviser since July 1992, and became an Assistant Vice President
of the Adviser in January 1999 and Asset Management in 1994 and became a Vice
President of the Adviser and Asset Management in February 1999.

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

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 are
valued by using market quotations, prices provided by market makers or estimates
of market values obtained from yield data relating to instruments or securities
with similar characteristics in accordance with procedures established by the
Fund's Board of Trustees. Securities for which market quotations are not readily
available and other assets 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.

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 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 of the Fund 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 for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."

Shares may be purchased on any business day by completing the 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.

The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.

15
<PAGE> 18

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 218256, Kansas City, MO 64121-8256.

CLASS A SHARES

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

CLASS A SHARES

SALES CHARGE SCHEDULE

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

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund 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.

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

Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the average daily net assets with respect to the Class A
Shares of the Fund. From such amount, under the Service Plan, the Fund may spend
up to 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares for the ongoing provision of services to Class A shareholders by
the Distributor and by brokers, dealers or financial intermediaries and for the
maintenance of such shareholders' accounts. The rates in this paragraph are
0.00% per year of the Fund's average daily net assets with respect to Class A
Shares for accounts existing from July 1, 1987.

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> <C> <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 dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for 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 totaled and deemed to have been made on the last day
of the month.

In determining whether a contingent deferred sales charge applies 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.

16
<PAGE> 19

Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class B Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for 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 dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

In determining whether a contingent deferred sales charge 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.

Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
average daily net assets with respect to the Class C Shares of the Fund. In
addition, under the Service Plan, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.

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 Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or 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) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is within 180 days after the

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<PAGE> 20

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 or no 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.

A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.

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

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

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds 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 or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.

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<PAGE> 21

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.

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 Morgan Stanley
Dean Witter and any of its subsidiaries and such persons' families and their
beneficial accounts.

(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter 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

19
<PAGE> 22

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.

(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
receipt by Investor Services of

20
<PAGE> 23

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
payment of redemption proceeds 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 218256, Kansas City, MO 64121-8256. 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,
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 to be in proper form. In some
cases, however, additional 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

21
<PAGE> 24

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.

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

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 dividends.

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 as capital gains dividends at
least annually. As in the case of dividends, capital gains dividends 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

22
<PAGE> 25

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

When 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.

23
<PAGE> 26

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 and other
Participating Funds may restrict exchanges by shareholders engaged in excessive
trading by limiting or disallowing the exchange privileges to such shareholders.
For further information on these restrictions see the Statement of Additional
Information. The Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.

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

Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares 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

24
<PAGE> 27

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.

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 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, or disposing of
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
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 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............................. $9.893 $9.854 $9.493 $9.398 $9.643 $10.380 $9.890 $9.855 $9.497
------- ------ ------- ------- ------- ------- ------- ------ -------
Net Investment Income.............. 0.619 0.857 0.857 0.878 0.844 0.908 0.560 0.782 0.777
Net Realized and Unrealized
Gain/Loss........................ (0.848) 0.037 0.384 0.147 (0.099) (0.595) (0.842) 0.036 0.389
------- ------ ------- ------- ------- ------- ------- ------ -------
Total from Investment Operations..... (0.229) 0.894 1.241 1.025 0.745 0.313 (0.282) 0.818 1.166
------- ------ ------- ------- ------- ------- ------- ------ -------
Less:
Distributions from and in Excess of
Net Investment Income............ 0.630 0.855 0.865 0.880 0.815 0.950 0.576 0.783 0.794
Return of Capital Distributions.... 0.000 0.000 0.015 0.050 0.175 0.100 0.000 0.000 0.014
------- ------ ------- ------- ------- ------- ------- ------ -------

Total Distributions.................. 0.630 0.855 0.880 0.930 0.990 1.050 0.576 0.783 0.808
------- ------ ------- ------- ------- ------- ------- ------ -------

Net Asset Value, End of the Period... $9.034 $9.893 $9.854 $9.493 $9.398 $9.643 $9.032 $9.890 $9.855
======= ====== ======= ======= ======= ======= ======= ====== =======

Total Return* (b).................... (2.13%)** 9.36% 13.60% 11.26% 8.50% 2.92% (2.71%)** 9.28% 12.64%
Net Assets at End of the Period (In
millions).......................... $277.9 $280.6 $288.0 $271.1 $253.3 $260.7 $135.4 $145.0 $128.7
Ratio of Expenses to Average Net
Assets*............................ 1.17% 1.14% 1.17% 1.31% 1.31% 1.32% 1.93% 1.91% 1.93%
Ratio of Net Investment Income to
Average Net Assets*................ 8.98% 8.61% 8.83% 9.16% 9.13% 8.85% 8.19% 7.84% 8.03%
Portfolio Turnover................... 104%** 154% 125% 102% 152% 203% 104%** 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........................... 1.27% 1.24% 1.26% 1.31% N/A N/A 2.03% 2.01% 2.02%
Ratio of Net Investment Income to
Average Net Assets............... 8.88% 8.51% 8.73% 9.15% N/A N/A 8.09% 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
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............................. $9.884 $9.851 $9.495 $9.396 $9.643 $10.340
------- ------ ------- -------- -------- -------
Net Investment Income.............. 0.562 0.780 0.780 0.828 0.745 0.761
Net Realized and Unrealized
Gain/Loss........................ (0.847) 0.036 0.384 0.129 (0.079) (0.605)
------- ------ ------- -------- -------- -------
Total from Investment Operations..... (0.285) 0.816 1.164 0.957 0.666 0.156
------- ------ ------- -------- -------- -------
Less:
Distributions from and in Excess of
Net Investment Income............ 0.576 0.783 0.794 0.812 0.751 0.763
Return of Capital Distributions.... 0.000 0.000 0.014 0.046 0.162 0.090
------- ------ ------- -------- -------- -------
Total Distributions.................. 0.576 0.783 0.808 0.858 0.913 0.853
------- ------ ------- -------- -------- -------
Net Asset Value, End of the Period... $9.023 $9.884 $9.851 $9.495 $9.396 $9.643
======= ====== ======= ======== ======== =======
Total Return* (b).................... (2.71%)** 8.47% 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of the Period (In
millions).......................... $14.7 $11.5 $8.1 $7.0 $2.0 $2.2
Ratio of Expenses to Average Net
Assets*............................ 1.93% 1.91% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets*................ 8.25% 7.83% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover................... 104%** 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........................... 2.03% 2.01% 2.03% 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets............... 8.15% 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.

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 218256

Kansas City, MO 64121-8256

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

JULY 29, 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 to
shareholders. The annual report explains the
market conditions and investment strategies
affecting the Fund's performance during its
last fiscal year.

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

Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC 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]
The Fund's Investment Company Act
File No. is 811-4629.
HYF
PRO 7/99
<PAGE> 36

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 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. Any representation to the contrary
is a criminal offense.

This prospectus is dated JULY 29, 1999.

[VAN KAMPEN FUNDS LOGO]
<PAGE> 37

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.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 7
Investment Objective, Policies and Risks.......... 8
Investment Advisory Services...................... 17
Purchase of Shares................................ 17
Redemption of Shares.............................. 24
Distributions from the Fund....................... 26
Shareholder Services.............................. 26
Federal Income Taxation........................... 28
Financial Highlights.............................. 30
Appendix -- Description of Securities Ratings..... A-1
</TABLE>

<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.

INVESTMENT STRATEGIES

The Fund's management seeks to achieve the investment objective by investing
primarily in a global portfolio of investment-grade 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. (See
sidebar on "Understanding Maturities and Understanding Duration"). Under normal
market conditions, the Fund invests at least 80% of its net assets in
investment-grade debt securities. (See sidebar on "Understanding Quality
Ratings"). 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.). Securities of foreign issuers, particularly
securities of issuers from emerging markets countries, involve certain risks not
typically associated with domestic investing, including foreign currency
exchange risks.

The Fund's management allocates portfolio assets among various types of U.S. and
foreign debt securities 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 up to 20% of its net assets in lower-grade debt securities,
which are commonly referred to as "junk bonds" and involve special risks as
compared to investments in higher-grade securities. The Fund may invest in
mortgage-backed and asset-backed securities, stripped securities, and
adjustable, variable, or 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.

UNDERSTANDING

MATURITIES

A debt security can be categorized according to its maturity, which is the
length of time before the issuer must repay the principal.

<TABLE>
<C> <S>
Term Maturity Level
- --------------------------------------------------
1-3 years Short
..................................................
4-10 years Intermediate
..................................................
More than 10 years Long
..................................................
</TABLE>

UNDERSTANDING

DURATION

Duration provides an alternative approach to assessing a security's market
risk. Duration measures the expected life of a security by incorporating the
security's yield, coupon interest payments, final maturity and call features
into one measure. Whereas maturity focuses only on the final principal
repayment date of a security, duration looks at the timing and present value
of all of a security's principal, interest or other payments. Typically, a
debt security with interest payments due prior to maturity has a duration
less than maturity. A zero-coupon bond, which does not make interest
payments prior to maturity, would have the same duration and maturity.

3
<PAGE> 39

INVESTMENT RISKS

An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.

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 maturities or 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 solely in longer-term securities. Lower-grade securities, especially
those with longer durations or that do not make regular interest payments, may
have more price volatility and may decline more than higher-grade securities.
Foreign markets may, but often do not, move in tandem with U.S. markets, and
foreign markets may have more price volatility than U.S. markets.

Market risk is often greater among certain types of debt securities, such as
mortgage-backed or asset-backed securities, stripped securities or structured
investments. 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.

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>

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. 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 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 are generally 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.

4
<PAGE> 40

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.

FOREIGN RISKS. Because the Fund will own securities of 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 generally
associated with foreign investments, 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 options on futures, and
interest rate swaps and other interest-rate related transactions), are examples
of derivatives. Derivative investments involve risks different from 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.

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 portfolio a fund that invests
primarily in U.S. and foreign short-term debt 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

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

5
<PAGE> 41

<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>

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

As a basis for evaluating the Fund's performance and risks, the table below
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 (a market-capitalization weighted index of
government, short-term, fixed-income bonds of 13 countries) and the J.P. Morgan
3-Month U.S. LIBOR Return Index (an index derived from the total return
performance of constant maturity euro-currency 3-month deposits of 11 markets).
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.

<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> <C> <C>
Van Kampen
Short-Term Global
Income Fund --
Class A Shares -1.17% 1.72% 3.79%(1)

J.P. Morgan
Short-
Term Global Index 11.17% 6.60% 7.27%(1)

J.P. Morgan
3-Month U.S.
LIBOR
Return Index 5.83% 5.72% 5.54%(1)
.......................................................
Van Kampen
Short-Term Global
Income Fund --
Class B Shares -1.55% 1.62% 3.21%(2)

J.P. Morgan
Short-Term Global
Index 11.17% 6.60% 7.21%(3)

J.P. Morgan
3-Month U.S.
LIBOR
Return Index 5.83% 5.72% 5.27%(3)
.......................................................
Van Kampen
Short-Term Global
Income Fund --
Class C Shares 0.38% 1.59% 1.72%(4)

J.P. Morgan
Short-Term Global
Index 11.17% 6.60% 6.32%(5)

J.P. Morgan
3-Month U.S.
LIBOR
Return Index 5.83% 5.72% 5.58(5)
.......................................................
</TABLE>

Inception date: (1) 9/28/90, (2) 7/22/91, (3) 7/31/91, (4) 8/13/93, (5) 8/31/93.

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.

6
<PAGE> 42

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 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."
(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 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%
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) 0.55% 0.55% 0.55%
..........................................................
Distribution and/or
Service (12b-1) 0.25% 1.00%(2) 1.00%(2)
Fees(2)
..........................................................
Other Expenses(1) 0.76% 0.76% 0.78%
..........................................................
Total Annual Fund
Operating Expenses(1) 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> <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>

7
<PAGE> 43

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

<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $479 $802 $1,147 $2,121
.......................................................................
Class B Shares $234 $721 $1,235 $2,458*
.......................................................................
Class C Shares $236 $727 $1,245 $2,666
.......................................................................
</TABLE>

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

INVESTMENT OBJECTIVE,

POLICIES AND RISKS

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 the approval of a majority of
shareholders 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 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 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.). Issuers of foreign lower-grade income securities
frequently will be located in emerging markets countries. 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 with 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.

Types of debt securities in which the Fund invests include fixed or variable
rate bonds, notes, bills or debentures issued or guaranteed by the U.S. Treasury
or foreign governments or their respective agencies, authorities or
instrumentalities, or by U.S. or foreign corporations, mortgage-backed and
asset-backed securities, stripped securities, certificates of deposit, bankers'
acceptances and other obligations of banks or commercial paper. 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 also 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

8
<PAGE> 44

Fund will not invest 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 debt
securities. Investment-grade securities are securities rated at the time of
investment BBB or higher by Standard & Poor's ("S&P") or rated Baa or higher by
Moody's Investors Service, Inc. ("Moody's") or comparably rated by any other
nationally recognized statistical rating organization ("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

9
<PAGE> 45

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" 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 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.

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

10
<PAGE> 46

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 debt 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 any other NRSRO
or, if unrated, believed by the Fund's investment adviser to be of comparable
quality. Such lower-grade debt 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 debt 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 the 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.

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

11
<PAGE> 47

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. A mortgage-backed security is a
general obligation of the issuer, which generally is secured by mortgages or
mortgage-backed collateral. Mortgage-backed securities may include securities
issued or guaranteed by U.S. government agencies or instrumentalities or issued
by private entities such as banks, savings and loans, mortgage bankers and other
nongovernmental issuers. Mortgage-backed securities may directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. Mortgage-backed securities include mortgage
pass-through certificates representing participation interests in pools of
mortgage loans originated by the U.S. government or by private lenders and
guaranteed directly or indirectly by U.S. government agencies or by private
lenders without government guarantees. The underlying collateral may include
whole mortgage loans or pass-through certificates secured by mortgage loans.

The yield and payment characteristics of mortgage-backed securities differ from
traditional debt securities. Interest and principal prepayments are made more
frequently, usually monthly, over the life of the mortgage loans and principal
may be prepaid at any time because the underlying mortgage loans generally may
be prepaid at any time. Faster or slower prepayments than expected on underlying
mortgage loans can dramatically alter the yield to maturity of a mortgage-backed
security. The value of most mortgage-backed securities, like traditional debt
securities, tends to vary inversely with changes in interest rates (i.e., as
interest rates increase, the value of such securities decrease). Mortgage-backed
securities, however, may benefit less than traditional debt securities from
declining interest rates because prepayment of mortgages tends to accelerate
during periods of declining interest rates. Prepayments shorten the life of the
security and shorten the time over which the Fund receives income at the higher
rate. Additionally, when mortgage loans underlying mortgage-backed securities
held by the Fund are prepaid, the Fund then reinvests the prepaid amounts in
other income securities, the yields of which will reflect interest rates
prevailing at the time. Therefore, the Fund's ability to maintain a portfolio of
higher-yielding mortgage-backed securities will be adversely affected by
decreasing interest rates and the extent that prepayments occur which must be
reinvested in securities which have lower yields. Any decline in the Fund's
income in turn adversely affects the Fund's dividend payments and distribution
to shareholders. Alternatively, during periods of rising interest rates,
mortgage-backed securities are often more susceptible to 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) than traditional debt securities.

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 real estate mortgage investment conduits ("REMICs") and
collateralized mortgage obligations ("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 whole 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 payment characteristics and
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 and certain classes or series may have more or less
volatility depending upon the predictability of cash flow for such class or
series. 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).

12
<PAGE> 48

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. In addition to traditional fixed-rate
securities, the Fund may invest in debt securities with 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.

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

13
<PAGE> 49

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.

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
portfolio 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, manage the effective interest
rate exposure of the Fund, 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.

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 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

14
<PAGE> 50

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 regulatory asset segregation requirements applicable to such
transactions.

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 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.

15
<PAGE> 51

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.

Subject to applicable legal or regulatory limitations, the Fund may lend its
portfolio securities 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 receives 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), 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. Increases in the Fund's
transaction costs would impact the Fund's performance. The turnover rate will
not be a limiting factor, however, if the Fund's investment adviser considers
portfolio changes appropriate.

16
<PAGE> 52

INVESTMENT ADVISORY SERVICES

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.

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.

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, Senior Vice
President of the Adviser. Mr. Slefinger has been primarily responsible for the
day-to-day management of the Fund's portfolio since September 1990. Mr.
Slefinger has held various positions since joining the Adviser in July 1989.

PURCHASE OF SHARES

GENERAL

17
<PAGE> 53

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's Board
of Trustees 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 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 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 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.

18
<PAGE> 54

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

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 218256, Kansas City, MO 64121-8256.

19
<PAGE> 55

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> <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>

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

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> <C> <C>
First 3.00%
................................................
Second 2.00%
................................................
Third 1.00%
................................................
Fourth and After None
................................................
</TABLE>

20
<PAGE> 56

0.25% per year of the Fund's average daily net assets with respect to the Class
B Shares for the ongoing provision of services to Class B shareholders by the
Distributor and by brokers, dealers or financial intermediaries and for 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 dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

21
<PAGE> 57

QUANTITY DISCOUNTS

OTHER PURCHASE PROGRAMS

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,

22
<PAGE> 58

should contact their authorized dealer or the Distributor.

(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter and any of its subsidiaries 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.

23
<PAGE> 59

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

24
<PAGE> 60

distribution-in-kind of portfolio securities. If the shares to be redeemed have
been recently purchased by check, Investor Services may delay the payment of
redemption proceeds until it confirms 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.

25
<PAGE> 61

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 dividends.

SHAREHOLDER SERVICES

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account

26
<PAGE> 62

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 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.

27
<PAGE> 63

FEDERAL INCOME
TAXATION

28
<PAGE> 64

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 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 or disposing of shares,
as well as the effects of state, local and foreign tax law and any proposed tax
law changes.

29
<PAGE> 65

FINANCIAL HIGHLIGHTS

<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...... $7.35 $7.55 $7.62 $7.56 $8.15 $9.11
------ ----- ------ ------ ------ -------
Net Investment Income........................ .33 .39 .42 .49 .50 .59
Net Realized and Unrealized Gain/Loss........ (.21) (.13) .03 .16 (.45) (.89)
------ ----- ------ ------ ------ -------

Total from Investment Operations.............. .12 .26 .45 .65 .05 (.30)
------ ----- ------ ------ ------ -------

Less:
Distributions from and in Excess of Net
Investment Income.......................... .33 .42 .51 -0- .37 .35
Return of Capital Distribution............... -0- .04 .01 .59 .27 .31
------ ----- ------ ------ ------ -------
Total Distributions........................... .33 .46 .52 .59 .64 .66
------ ----- ------ ------ ------ -------

Net Asset Value, End of the Period............ $7.14 $7.35 $7.55 $7.62 $7.56 $8.15
====== ===== ====== ====== ====== =======

Total Return*(b).............................. 1.76%** 3.46% 6.09% 8.81% .69% (3.61%)
Net Assets at End of the Period (In
millions).................................... $51.0 $45.7 $39.5 $50.1 $72.5 $147.7
Ratio of Expenses to Average Net Assets*(c)... 1.56% 1.39% 1.33% 1.31% 1.14% 1.13%
Ratio of Net Investment Income to Average Net
Assets*...................................... 6.21% 5.40% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover............................ 53%** 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
(c)........................................ N/A 1.41% 1.36% 1.34% N/A N/A
Ratio of Net Investment Income to Average Net
Assets..................................... N/A 5.38% 5.34% 6.51% N/A N/A

<CAPTION>
Class B Shares
Nine Months
Ended
March 31, Year Ended June 30,
1999(a) 1998(a) 1997(a) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $7.35 $7.55 $7.62 $7.56 $8.15 $9.10
------ ------ ------ ------ ------ -------
Net Investment Income........................ .36 .36 .35 .39 .41 .54
Net Realized and Unrealized Gain/Loss........ (.28) (.16) .04 .20 (.42) (.90)
------ ------ ------ ------ ------ -------
Total from Investment Operations.............. .08 .20 .39 .59 (.01) (.36)
------ ------ ------ ------ ------ -------
Less:
Distributions from and in Excess of Net
Investment Income.......................... .29 .37 .45 -0- .34 .32
Return of Capital Distribution............... -0- .03 .01 .53 .24 .27
------ ------ ------ ------ ------ -------
Total Distributions........................... .29 .40 .46 .53 .58 .59
------ ------ ------ ------ ------ -------
Net Asset Value, End of the Period............ $7.14 $7.35 $7.55 $7.62 $7.56 $8.15
====== ====== ====== ====== ====== =======
Total Return*(b).............................. 1.15%** 2.67% 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the Period (In
millions).................................... $3.0 $19.6 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average Net Assets*(c)... 2.31% 2.16% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment Income to Average Net
Assets*...................................... 5.46% 4.48% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover............................ 53%** 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
(c)........................................ N/A 2.18% 2.12% 2.09% N/A N/A
Ratio of Net Investment Income to Average Net
Assets..................................... N/A 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(a) 1998(a) 1997(a) 1996 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $7.35 $7.55 $7.62 $7.56 $8.16 $9.24
------ ------ ------ ------ ------ ------
Net Investment Income........................ .29 .34 .35 .45 .50 .49
Net Realized and Unrealized Gain/Loss........ (.21) (.14) .04 .14 (.52) (1.05)
------ ------ ------ ------ ------ ------
Total from Investment Operations.............. .08 .20 .39 .59 (.02) (.56)
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess of Net
Investment Income.......................... .29 .37 .45 -0- .34 .27
Return of Capital Distribution............... -0- .03 .01 .53 .24 .25
------ ------ ------ ------ ------ ------
Total Distributions........................... .29 .40 .46 .53 .58 .52
------ ------ ------ ------ ------ ------
Net Asset Value, End of the Period............ $7.14 $7.35 $7.55 $7.62 $7.56 $8.16
====== ====== ====== ====== ====== ======
Total Return*(b).............................. 1.15%** 2.67% 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the Period (In
millions).................................... $.3 $.3 $.2 $.2 $.2 $.2
Ratio of Expenses to Average Net Assets*(c)... 2.33% 2.16% 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment Income to Average Net
Assets*...................................... 5.46% 4.67% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover............................ 53%** 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
(c)........................................ N/A 2.17% 2.12% 2.09% N/A N/A
Ratio of Net Investment Income to Average Net
Assets..................................... N/A 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

30
<PAGE> 66

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> 67

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> 68

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> 69

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

1. LONG-TERM DEBT

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.

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> 70

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> 71

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 218256

Kansas City, MO 64121-8256

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> 72

VAN KAMPEN
SHORT-TERM GLOBAL
INCOME FUND

PROSPECTUS

JULY 29, 1999

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

[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4629
STGI PRO
7/99
<PAGE> 73

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 JULY 29, 1999.

[VAN KAMPEN FUNDS LOGO]
<PAGE> 74

TABLE OF CONTENTS

<TABLE>
<S> <C>
Risk/Return Summary.............................. 3
Fees and Expenses of the Fund.................... 7
Investment Objectives, Policies and Risks........ 8
Investment Advisory Services..................... 21
Purchase of Shares............................... 22
Redemption of Shares............................. 28
Distributions from the Fund...................... 30
Shareholder Services............................. 30
Federal Income Taxation.......................... 32
Financial Highlights............................. 34
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.

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. 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 are invested in each of at least three of these sectors. A
substantial portion of the Fund's total assets may be invested in lower-grade
securities, commonly referred to as "junk bonds" and including securities in
default, and in securities of foreign issuers, including securities of issuers
from emerging markets countries. Investments in such securities involve
significant risks. The Fund may invest mortgage-backed and asset-backed
securities, stripped securities, and adjustable, variable or floating rate
securities. The Fund may invest up to 20% of its assets in defaulted bank loans.
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. There can be no assurance that the Fund
will achieve its investment objectives.

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

3
<PAGE> 76

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 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 generally 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.

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.

The Fund may invest in pools of mortgages or other assets issued or guaranteed
by private organizations or U.S. government agencies or instrumentalities. These
securities are especially sensitive to prepayment risk because borrowers often
refinance or prepay such debt obligations when interest rates decline.

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, 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 its duration.

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

4
<PAGE> 77

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 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. Derivative investments involve risks different from 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 objectives and investment strategies, the Fund may be
appropriate for investors who:

- - Seek high current income and, secondarily, seek 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 the 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>

5
<PAGE> 78

Fund's Class A Shares because of differences in the expenses borne by each class
of shares.

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

COMPARATIVE PERFORMANCE

As a basis for evaluating the Fund's performance and risks, the table below
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 any
commissions or sales 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 Past 5
for the Years/
Periods Ended Past Since
December 31, 1998 1 Year Inception
- ---------------------------------------------
<S> <C> <C> <C> <C>
Van Kampen
Strategic Income
Fund -- Class A
Shares -6.19% 3.05%(1)
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27%(1)
Composite of
Salomon Brothers
Indices 4.80% 7.98%(1)
.............................................
Van Kampen
Strategic Income
Fund -- Class B
Shares -5.93% 3.02%(1)
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27%(1)
Composite of
Salomon Brothers
Indices 4.80% 7.98%(1)
.............................................
Van Kampen
Strategic Income
Fund -- Class C
Shares -3.20% 3.22%(1)
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27%(1)
Composite of
Salomon Brothers
Indices 4.80% 7.98%(1)
.............................................
</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. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.

6
<PAGE> 79

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>

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 1.03% 1.03% 1.03%
Fees(1),(4)
..............................................................
Distribution and/or
Service (12b-1) 0.25% 1.00%(3) 1.00%(3)
Fees(2)
..............................................................
Other Expenses:
Miscellaneous Other
Expenses(4) 0.54% 0.55% 0.54%
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 calculated based on a
percentage of average daily managed assets. For purposes of determining
Management Fees, "daily managed assets" is 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 -- Miscellaneous 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,
Policies and Risks."

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> 80

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 $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> <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,

POLICIES AND RISKS

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 the approval of a majority of
shareholders 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 are 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 may invest a
substantial portion of its total assets in securities of foreign issuers,
including securities of issuers from emerging markets countries.

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

8
<PAGE> 81

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;
discount, zero coupon or 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 an index.

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 Standard & Poor's ("S&P") or rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or comparably rated by any other nationally recognized
statistical rating organization ("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 any other NRSRO or unrated
securities of comparable quality. The Fund may purchase lower-grade securities
with no minimum rating or quality standard limitation, including securities that
are in default. 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. 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 invests 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

9
<PAGE> 82

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 of the U.S. Treasury (such as U.S.
Treasury bills, U.S. Treasury notes, U.S. Treasury bonds, U.S. government
created strips under the Separate Trading of Registered Interest and Principal
of Securities program (i.e. "STRIPS") or U.S. Treasury inflation-protected
securities) or obligations issued or guaranteed by U.S. government agencies or
instrumentalities (including government issued or guaranteed mortgage-backed
securities, which are described in more detail under "Additional Information
Regarding Certain Income Securities"). 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 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.
Such securities may be denominated in any currency. 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.
Such securities may be denominated in any currency. Investments in this sector
may include interests or assignments in defaulted, non-performing 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

10
<PAGE> 83

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 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.

11
<PAGE> 84

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 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 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 higher portion of unlisted or unrated securities as compared with an
investment company that invests primarily in higher-grade securities. Unrated
securities are usually not as attractive to as many buyers as are rated
securities, a factor which may make unrated securities less marketable. These
factors may have the effect of limiting the availability of the securities for
purchase by the Fund and may also limit the ability of the Fund to sell such
securities at their fair value either to meet redemption requests or in response
to changes in the economy or the financial markets. Further, to the extent the
Fund owns or may acquire illiquid or restricted 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. Additionally, since most
foreign income securities are not rated, the Fund will invest in such securities
based on the Fund's investment adviser's analysis without any guidance from
published ratings. Because of the number of investment considerations involved
in investing in lower-grade securities and foreign income securities,
achievement of the Fund's investment objectives may be more dependent upon the
investment adviser's credit analysis than is the case with investing in
higher-grade securities.

12
<PAGE> 85

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.

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 income 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> <C>
AAA/Aaa 33.00% 0.00%
.......................................................................
AA/Aa 0.50% 0.00%
.......................................................................
A/A 6.50% 0.30%
.......................................................................
BBB/Baa 15.30% 0.00%
.......................................................................
BB/Ba 26.20% 2.50%
.......................................................................
B/B 13.20% 1.10%
.......................................................................
CCC/Caa 0.50% 0.50%
.......................................................................
CC/Ca 0.00% 0.20%
.......................................................................
C/C 0.00% 0.20%
.......................................................................
D 0.00% 0.00%
.......................................................................
Percentage of Rated
and Unrated 95.20% 4.80%
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 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.

13
<PAGE> 86

when assets are not fully invested or attractive investment opportunities are
foregone.

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> 87

mortgage loans and principal may be prepaid at any time because the underlying
mortgages may be prepaid at any time. Faster or slower prepayments than expected
on underlying mortgage loans can dramatically alter the yield to maturity of a
mortgage-backed security. The value of most mortgage-backed securities, like
traditional debt securities, tends to vary inversely with changes in interest
rates (i.e., as interest rates increase, the value of such securities decrease).
Mortgage-backed securities, however, may benefit less than traditional debt
securities from declining interest rates because prepayment of mortgages tends
to accelerate during periods of declining interest rates. Prepayments shorten
the life of the security and shorten the time over which the Fund receives
income at the higher rate. Additionally, when mortgage loans underlying
mortgage-backed securities held by the Fund are prepaid, the Fund then reinvests
the prepaid amounts in other income securities, the yields of which will reflect
interest rate prevailing at the time. Therefore, the Fund's ability to maintain
a portfolio of higher-yielding mortgage-backed securities will be adversely
affected by decreasing interest rates and the extent that prepayments occur
which must be reinvested in securities which have lower yields. Any decline in
the Fund's income in turn adversely affects the Fund's dividend payments and
distribution to shareholders. Alternatively, during periods of rising interest
rates, mortgage-backed securities are often more susceptible 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) than traditional debt securities.

The Fund may invest in real estate mortgage investment conduits ("REMICs") and
collateralized mortgage obligations ("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 whole 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 payment characteristics and
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; and certain classes or series may have more or less
volatility depending upon the predictability of cash flow for such class or
series. 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.

15
<PAGE> 88

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. In addition to traditional fixed-income
securities, the Fund may invest in income securities with variable or floating
rate interest or dividend payments. Variable or floating rate securities bear
rates of interest that are adjusted periodically according to formula 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 issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. Because such securities
do not entitle the holder to any periodic payments of interest prior to
maturity, this prevents the reinvestment of such interest payments if prevailing
interest rates rise. On the other hand, because there are no periodic interest
payments to be reinvested prior to maturity, "zero coupon" securities eliminate
the reinvestment risk and may lock in a favorable rate of return to maturity if
interest rates drop. Payment-in-kind securities are 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

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<PAGE> 89

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 the payments from the borrower. The Fund generally has no 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
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

17
<PAGE> 90

transactions between their issuers and their purchasers and that are neither
listed on an exchange nor traded in the OTC secondary market. A significant
portion of the high yield, high risk bond market is privately placed securities
or restricted securities sold to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, as amended. 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. The Fund monitors the liquidity of such securities and securities not
considered liquid are subject to the Fund's limitation on illiquid securities.
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
or income amounts may be 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

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
portfolio 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, manage the effective interest
rate exposure of the Fund, 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.

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<PAGE> 91

Transactions depends on the Fund's investment adviser's ability to predict
pertinent market movements, which cannot be assured. Thus, the use of Strategic
Transactions may result in losses greater than if they had not been used, may
require the Fund to sell or purchase portfolio securities at inopportune times
or for prices other than current market values, may limit the amount of
appreciation the Fund can realize on an investment, or may cause the Fund to
hold a security that 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 of the Fund to
deliver or receive a specified currency. Additionally amounts paid by the Fund
as premiums and cash or other assets held in margin accounts with respect to
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. Bank borrowing may be done on a
secured or unsecured basis. The Fund may pay various fees and expenses in
connection with the borrowing, and the loan agreements may contain covenants or
restrictions on certain investment practices in which the Fund may otherwise be
permitted to engage. During periods in which the Fund is utilizing leverage, the
fees paid to the Fund's investment adviser will be higher than if the Fund did
not utilize leverage because the fees paid will be calculated on the basis of
the average daily managed assets of the Fund, including proceeds from leverage
transactions.

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.

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 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 receives the interest earned on the collateral which
is invested in short-term instruments or receives an agreed-upon amount of
interest income from the borrower who has delivered the

19
<PAGE> 92

collateral or letter of credit. As with any extensions or 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.

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. Increases in the Fund's transaction costs
would impact the Fund's performance. 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 market conditions, the potential for
current income or capital appreciation on these securities will tend to be lower
than the potential for current income or capital appreciation on other
securities that could be owned by the Fund. The Fund may not achieve its
investment objective if it takes a defensive position.

20
<PAGE> 93

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. These risks may be more acute in
certain foreign countries, particularly emerging market countries. 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

<TABLE>
<CAPTION>
Average Daily Managed Assets % Per Annum
- ---------------------------------------------------
<S> <C> <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>

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 a management team led by Peter W.
Hegel, an Executive Vice President of the Adviser and Asset

21
<PAGE> 94

Management. Mr. Hegel has been employed by the Adviser since April 1983 and with
Asset Management since June 1995.

Robert J. Hickey, Vice President of the Adviser and Asset Management has been
primarily responsible for the day-to-day management of the Fund's portfolio
since January 1995. Mr. Hickey joined the Adviser in 1988 and became Assistant
Vice President in January 1993. Mr. Hickey has been a Vice President of the
Adviser and Asset Management since June 1995.

Thomas J. Slefinger, Senior Vice President of the Adviser and Asset Management,
has been employed by the Adviser since July 1989 and Asset Management since June
1995. Mr. Slefinger was previously a First Vice President with the Adviser and
Asset Management.

John R. Reynoldson has been Senior Vice President of Asset Management since July
1991 and Senior Vice President of the Adviser since June 1995. Mr. Reynoldson
was previously a Vice President with Asset Management.

Kelly Gilbert joined the Adviser and Asset Management in September 1995 and
became an Assistant Vice President in December 1997. Ms. Gilbert has been a Vice
President of the Adviser and Asset Management since February 1999. Prior to
September 1995, Ms. Gilbert was a Corporate Bond Trader at ABN AMRO, N.A., a
foreign owned bank.

PURCHASE OF SHARES

GENERAL

22
<PAGE> 95

valued at cost plus interest earned (amortized cost), which approximates market
value.

The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund

23
<PAGE> 96

also reserves the right to suspend the sale of the Fund's shares in response to
conditions in the securities markets or for other reasons. Shares of the Fund
may be sold in foreign countries where permissible.

CLASS A SHARES

SALES CHARGE SCHEDULE

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

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

24
<PAGE> 97

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 dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

25
<PAGE> 98

of the account, (iv) if no commission or transaction fee is paid to authorized
dealers at the time of purchase of such shares and (v) if made by involuntary
liquidation by the Fund of a shareholder's account as described under the
heading "Redemption of Shares." Subject to certain limitations, a shareholder
who has redeemed Class C Shares of the Fund may reinvest in Class C Shares at
net asset value with credit for any contingent deferred sales charge if the
reinvestment is within 180 days after the 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

OTHER PURCHASE PROGRAMS

26
<PAGE> 99

(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter and any of its subsidiaries 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.

(8) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of

27
<PAGE> 100

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.

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

28
<PAGE> 101

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
receipt 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 payment of redemption proceeds 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.

29
<PAGE> 102

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

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 dividends.

SHAREHOLDER SERVICES

30
<PAGE> 103

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 and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.

31
<PAGE> 104

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. 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 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.

32
<PAGE> 105

individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.

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 or disposing of shares,
as well as the effects of state, local and foreign tax law and any proposed tax
law changes.

33
<PAGE> 106

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Class A Shares Class B Shares
From
December 31,
1993
Nine (Commencement Nine
Months of Investment Months
Ended Year Ended June 30, Operations) Ended Year Ended June 30,
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............ $12.286 $12.778 $12.065 11.704 $11.975 $14.300 $12.286 $12.779 $12.069
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income.... .679 0.973 1.019 1.013 0.657 0.566 .622 0.878 0.920
Net Realized and
Unrealized Gain/ Loss.. (1.236) (.489) 0.714 0.446 0.272 (2.391) (1.243) (.491) 0.717
------- ------- ------- ------- ------- ------- ------- ------- -------

Total from Investment
Operations............... (.557) 0.484 1.733 1.459 0.929 (1.825) (.621) 0.387 1.637
------- ------- ------- ------- ------- ------- ------- ------- -------

Less:
Distributions from and in
Excess of Net
Investment Income...... .711 0.976 1.020 1.098 0.793 0.500 .639 0.880 0.927
Return of Capital
Distributions.......... -0- -0- -0- -0- 0.407 -0- -0- -0- -0-
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions........ .711 0.976 1.020 1.098 1.200 0.500 .639 0.880 0.927
------- ------- ------- ------- ------- ------- ------- ------- -------

Net Asset Value, End of the
Period................... $11.018 $12.286 $12.778 $12.065 $11.704 $11.975 $11.026 $12.286 $12.779
======= ======= ======= ======= ======= ======= ======= ======= =======

Total Return*(a)........... (4.47%)** 3.89% 14.92% 12.92% 8.46% (12.83%)** (4.99)** 3.11% 13.98%
Net Assets at End of the
Period (In millions)..... $41.8 $45.3 $43.8 $33.8 $29.6 $24.5 $62.8 $76.2 $76.2
Ratio of Expenses to
Average Net Assets*...... 1.53% 1.68% 1.81% 1.84% 1.98% 1.88% 2.29% 2.44% 2.57%
Ratio of Interest Expense
to Average Net Assets.... 1.79% 1.69% 1.99% 2.27% 2.38% .96% 1.80% 1.69% 1.98%
Ratio of Net Investment
Income to Average Net
Assets*.................. 8.06% 7.72% 8.12% 8.34% 5.88% 9.27% 7.30% 6.96% 7.33%
Portfolio Turnover......... 282%** 523% 474% 343% 253% 114%** 282%** 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........... 1.82% 1.78% 1.86% 1.92% N/A N/A 2.58% 2.54% 2.61%
Ratio of Net Investment
Income to Average Net
Assets............... 7.78% 7.63% 8.07% 8.26% N/A N/A 7.02% 6.86% 7.28%

<CAPTION>
Class B Shares Class C Shares
From
December 31,
1993
(Commencement Nine
of Investment Months
ear Ended June 30,
------------------ to June 30, March 31, -------------------------------------
1996 1995 1994 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $11.706 $11.968 $14.300 $12.274 $12.768 $12.059 $11.699 $11.966
------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income.... 0.926 0.585 0.515 .607 0.876 0.913 0.944 0.598
Net Realized and
Unrealized Gain/ Loss.. 0.443 0.245 (2.392) (1.229) (.490) 0.723 0.422 0.227
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations............... 1.369 0.830 (1.877) (.622) 0.386 1.636 1.366 0.825
------- ------- ------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net
Investment Income...... 1.006 0.722 0.455 .639 0.880 0.927 1.006 0.722
Return of Capital
Distributions.......... -0- 0.370 -0- -0- -0- -0- -0- 0.370
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions........ 1.006 1.092 0.455 .639 0.880 0.927 1.006 1.092
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period................... $12.069 $11.706 $11.968 $11.013 $12.274 $12.768 $12.059 $11.699
======= ======= ======= ======= ======= ======= ======= =======
Total Return*(a)........... 12.06% 7.62% (13.21%)** (5.01%)** 3.03% 13.99% 12.07% 7.53%
Net Assets at End of the
Period (In millions)..... $61.9 $52.6 $46.4 $4.0 $3.9 $3.8 $3.1 $1.7
Ratio of Expenses to
Average Net Assets*...... 2.59% 2.68% 2.63% 2.28% 2.44% 2.56% 2.58% 2.69%
Ratio of Interest Expense
to Average Net Assets.... 2.26% 2.38% .96% 1.77% 1.69% 1.98% 2.22% 2.38%
Ratio of Net Investment
Income to Average Net
Assets*.................. 7.58% 5.30% 8.48% 7.29% 6.96% 7.31% 7.49% 5.92%
Portfolio Turnover......... 343% 253% 114%** 282%** 523% 474% 343% 253%
* If certain expenses had
as follows:
Ratio of Operating
Expenses to Average
Net Assets........... 2.67% N/A N/A 2.57% 2.54% 2.61% 2.66% N/A
Ratio of Net Investment
Income to Average Net
Assets............... 7.50% N/A N/A 7.01% 6.87% 7.27% 7.41% N/A

From
December 31,
1993
(Commencement
of Investment
Operations)
to June 30,
1994
<S> <C> <C>
Net Asset Value, Beginning
of the Period............ $14.300
-------
Net Investment Income.... 0.509
Net Realized and
Unrealized Gain/ Loss.. (2.388)
-------
Total from Investment
Operations............... (1.879)
-------
Less:
Distributions from and in
Excess of Net
Investment Income...... 0.455
Return of Capital
Distributions.......... -0-
-------
Total Distributions........ 0.455
-------
Net Asset Value, End of the
Period................... $11.966
=======
Total Return*(a)........... (13.21%)**
Net Assets at End of the
Period (In millions)..... $2.1
Ratio of Expenses to
Average Net Assets*...... 2.65%
Ratio of Interest Expense
to Average Net Assets.... .95%
Ratio of Net Investment
Income to Average Net
Assets*.................. 8.36%
Portfolio Turnover......... 114%**
* If certain expenses had
as follows:
Ratio of Operating
Expenses to Average
Net Assets........... N/A
Ratio of Net Investment
Income to Average Net
Assets............... 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 Notes to Financial Statements.

34
<PAGE> 107

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:

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> 108

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> 109

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> 110

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> 111

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> 112

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 218256

Kansas City, MO 64121-8256

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> 113

VAN KAMPEN
STRATEGIC INCOME FUND

PROSPECTUS

JULY 29, 1999

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

[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-4629.
SIF PRO 7/99
<PAGE> 114

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-9
Investment Restrictions..................................... B-18
Trustees and Officers....................................... B-20
Investment Advisory Agreement............................... B-31
Other Agreements............................................ B-32
Distribution and Service.................................... B-33
Transfer Agent.............................................. B-37
Portfolio Transactions and Brokerage Allocation............. B-37
Shareholder Services........................................ B-39
Redemption of Shares........................................ B-42
Contingent Deferred Sales Charge-Class A.................... B-42
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-43
Taxation.................................................... B-45
Fund Performance............................................ B-50
Other Information........................................... B-54
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-19
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JULY 29, 1999.

<PAGE> 115

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. ("Morgan Stanley Dean Witter"). 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.

Morgan Stanley Dean Witter 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.

B-2
<PAGE> 116

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> 117

As of July 8, 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 July 8, 1999 of Shares Ownership
-------------------------- ------------ --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company...................... 2,381,382.39 A 8.14%
2800 Post Oak Blvd. 781,130.76 B 5.38%
Houston, TX 77056
Merrill Lynch Pierce Fenner & Smith Inc....... 802,379.29 B 5.53%
For the Sole Benefit of its Customers 248,018.95 C 16.67%
Attn: Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>

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

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 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> 118

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 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.

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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

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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.

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.

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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.

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 generally entitles the holder to receive interest 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.

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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.

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.

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 the payments from the borrower. The Fund generally has no 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.

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.

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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,
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"). Among other
things, 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.

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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.

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.

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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.

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.

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"). Certain OTC options may be illiquid and subject to the
Fund's limitation on illiquid securities.

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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 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

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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.

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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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.

B-15
<PAGE> 129

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 enter into swaps, caps, floors and 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, 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

B-16
<PAGE> 130

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. 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.

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

B-17
<PAGE> 131

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 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

B-18
<PAGE> 132

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.

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

B-19
<PAGE> 133

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).

TRUSTEES

B-20
<PAGE> 134

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological
Barrington Place, Building 4 company. Trustee/Director of each of the
18 E. Dundee Road, Suite 101 funds in the Fund Complex. Prior to January
Barrington, IL 60010 1999, Chairman and Chief Executive Officer of
Date of Birth: 09/16/38 The Allstate Corporation ("Allstate") and
Allstate Insurance Company. Prior to January
1995, President and Chief Executive Officer
of Allstate. Prior to August 1994, Mr. Choate
held various management positions at
Allstate.
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.
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.
Trustee of the TCW/DW Funds, Director of the
Morgan Stanley Dean Witter Funds and
Trustee/Director of other funds in the Fund
Complex. Prior to March 1999, Chairman, Chief
Executive Officer, President and 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, 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.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Trustee/Director of
233 South Wacker Drive each of the funds in the Fund Complex. Prior
Suite 7000 to 1997, Partner, Ray & Berndtson, Inc., an
Chicago, IL 60606 executive recruiting and management
Date of Birth: 06/03/48 consulting firm. Formerly, Executive Vice
President of ABN 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.
</TABLE>

B-21
<PAGE> 135

<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. Trustee/Director of
Washington, D.C. 20016 each of the funds in the Fund Complex.
Date of Birth: 02/29/52 Formerly, advisor to the Dennis Trading Group
Inc. Prior to 1992, President and Chief
Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation,
a private foundation.
Jack E. Nelson............................ President and owner, Nelson Investment
423 Country Club Drive Planning Services, Inc., a financial planning
Winter Park, FL 32789 company and registered investment adviser.
Date of Birth: 02/13/36 President and owner, Nelson Ivest Brokerage
Services Inc., a member of the National
Association of Securities Dealers, Inc. and
Securities Investors Protection Corp.
Trustee/Director of each of the funds in the
Fund Complex.
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. Trustee/ Director of certain
open-end investment companies in the Fund
Complex and Trustee/Managing General Partner
of other funds advised by the Advisers or Van
Kampen Management Inc. Immediate past
Chairman of the Investment Company Institute.
Prior to January 1999, Chairman and Director
of Van Kampen Investments, the Advisers, the
Distributor, and Investor Services and
Director or officer of certain other
subsidiaries of Van Kampen Investments. Prior
to July 1998, Director and Chairman of VK/AC
Holding, Inc. Prior to November 1996,
President, Chief Executive Officer and
Director of VK/AC Holding, 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. Trustee/ Director
of each of the funds in the Fund Complex.
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.

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.
</TABLE>

B-22
<PAGE> 136

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
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.

Suzanne H. Woolsey, Ph.D.................. Chief Operating Officer of the National
2101 Constitution Ave., N.W. Academy of Sciences/National Research
Room 206 Council, an independent, federally chartered
Washington, D.C. 20418 policy institution. Director of Neurogen
Date of Birth: 12/27/41 Corporation, a pharmaceutical company.
Director and former Chairman of the German
Marshall Fund of the United States Trustee of
Colorado College, Vice Chair of the Board of
the Council for Excellence in Government.
Trustee/Director of each of the funds in the
Fund Complex. Prior to 1993, Executive
Director of the Commission on Behavioral and
Social Sciences and Education at the National
Academy of Sciences/ National Research
Council. Prior to 1989, Partner of Coopers &
Lybrand.

Paul G. Yovovich.......................... Private investor. Director of 3Com
Sears Tower Corporation, which provides information
233 South Wacker Drive access products and network system solutions,
Suite 9700 COMARCO, Inc., a wireless communications
Chicago, IL 60606 products company and APAC Customer Services,
Date of Birth: 10/29/53 Inc., a provider of outsourced customer
contact services. Trustee/Director of each of
the funds in the Fund Complex. Prior to May
1996, President of Advance Ross Corporation,
an international transaction services and
pollution control equipment manufacturing
company.
</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 or its affiliates.

B-23
<PAGE> 137

OFFICERS

Messrs. Powers, McDonnell, Smith, Hegel, Sullivan, Wood and Wetherell 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>
Richard F. Powers III................ President and Chief Executive Officer of Van
Date of Birth: 02/02/46 Kampen Investments. President of each of the
President Funds in the Fund Complex. Prior to May 1998,
Executive Vice President and Director of
Marketing at Morgan Stanley Dean Witter and
Director of Dean Witter Discover & Co. and Dean
Witter Realty. Prior to 1996, Director of Dean
Witter Reynolds Inc.

Dennis J. McDonnell.................. Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
Chief Investment Officer and Officer and Director of the Advisers, Van Kampen
Executive Vice President Advisors Inc., and Van Kampen Management Inc.
Chief Investment Officer and Executive Vice
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. 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.
a financial research firm, and Chairman and
Director of MCM Asia Pacific Company, Limited and
MCM (Europe) Limited.
</TABLE>

B-24
<PAGE> 138

<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
A. Thomas Smith III.................. Executive Vice President, General Counsel,
Date of Birth: 12/14/56 Secretary and Director of Van Kampen Investments,
Vice President and Secretary the Advisers, Van Kampen Advisors Inc., Van
Kampen Management Inc., the Distributor, American
Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services
Inc., Investor Services, Van Kampen Insurance
Agency of Illinois Inc. and Van Kampen System
Inc. Vice President and Secretary of each of the
funds in the Fund Complex and certain other
investment companies advised by the Advisers or
their affiliates. Prior to January 1999, counsel
to New York Life Insurance Company ("New York
Life"), and prior to March 1997, Vice President
and Associate General Counsel of New York Life.
Prior to December 1993, Assistant General Counsel
of The Dreyfus Corporation. Prior to August 1991,
Senior Associate, Willkie Farr & Gallagher. Prior
to January 1989, Mr. Smith was a Staff Attorney
at the Securities and Exchange Commission,
Division of Investment Management, Office of
Chief Counsel.

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. Vice President of each of the funds in the
Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of
McCarthy, Crisanti & Maffei, Inc, a financial
research company.

Stephen L. Boyd...................... Vice President and Chief Investment Officer for
Date of Birth: 11/16/40 equity investments at the Advisers. Vice
Vice President President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
Prior to October 1998, Vice President, Senior
Portfolio Manager with AIM Capital Management,
Inc. Prior to February 1998, Senior Vice
President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.

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.
</TABLE>

B-25
<PAGE> 139

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

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.

Weston B. Wetherell.................. Vice President, Deputy 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.

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 who is not an affiliated person of Van Kampen
Investments, the Advisers or the Distributor (each a "Non-Affiliated Trustee")
holds the same position with each of the funds in the Fund Complex. Messrs.
DeMartini and Powell hold the same position with each of the Funds in the Fund
Complex except for the Van Kampen Technology Fund. As of the date of this
Statement of Additional Information, there are 66 operating funds in the Fund
Complex. Each 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.

B-26
<PAGE> 140

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-27
<PAGE> 141

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 Trust(2) Expenses(3) Retirement(4) Complex(5)
------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ 3,048 $35,691 $60,000 $125,200
Jerry D. Choate(5) 0 0 60,000 0
Linda Hutton Heagy 3,048 3,861 60,000 112,800
R. Craig Kennedy 3,048 2,652 60,000 125,200
Jack E. Nelson 3,048 18,385 60,000 125,200
Phillip B. Rooney 2,448 6,002 60,000 125,200
Dr. Fernando Sisto 3,048 68,615 60,000 125,200
Wayne W. Whalen 3,048 12,658 60,000 125,200
Suzanne H. Woolsey(5) 0 0 60,000 0
Paul G. Yovovich(5) 1,619 0 60,000 25,300
</TABLE>

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

(1) 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 three operating 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, $3,048; Ms. Heagy,
$3,048; Mr. Kennedy, $1,525; Mr. Nelson, $3,048; Mr. Rooney, $2,448; Dr.
Sisto, $1,525; Mr. Whalen, $3,048; and Mr. Yovovich, $804. 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 operating series of the Trust as of the Trust's fiscal period ended
March 31, 1999 is as follows: Mr. Branagan, $21,964; Mr. Gaughan, $6,321;
Ms. Heagy, $27,695; Mr. Kennedy, $48,375; Mr. Miller, $30,195; Mr. Nelson,
$64,862; Mr. Robinson, $49,131; Mr. Rooney, $11,775; Dr. Sisto, $8,166; Mr.
Whalen, $54,350; and Mr. Yovovich, $838. The details of cumulative deferred
compensation (including

B-28
<PAGE> 142

interest) for each series of the Trust 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 funds in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
Retirement Plan is described above the Compensation Table. Each
Non-Affiliated Trustee has served as a member of the Board of Trustees since
the year set forth in Table D below.

(5) Mr. Yovovich became a member of the Board of Trustees for the Fund and other
funds in the Fund Complex on October 22, 1998 and therefore does not have a
full calendar year of information to report. Mr. Choate and Ms. Woolsey
became members of the Board of Trustees for the Fund and other funds in the
Fund Complex on May 26, 1999 and therefore do not have any 1998 calendar
year information to report. The amounts shown in this column represent the
aggregate compensation paid by all funds 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.

As of July 8, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-29
<PAGE> 143

TABLE A

1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......... 3/31 $1,253 $0 $1,253 $1,253 $1,253 $1,053 $1,253 $1,253 $0 $ 694
Managed Short Term
Income Fund........... 3/31 ** ** ** ** ** ** ** ** ** **
Short-Term Global Income
fund.................. 3/31 866 0 866 866 866 666 866 866 0 442
Strategic Income fund... 3/31 929 0 929 929 929 729 929 929 0 483
------ -- ------ ------ ------ ------ ------ ------ -- ------
Trust Total........... $3,048 $0 $3,048 $3,048 $3,048 $2,448 $3,048 $3,048 $0 $1,619
</TABLE>

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

* Each 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. The Managed Short Term
Income Fund has not commenced investment operations as of March 31, 1999.

** Such trustees received an organizational meeting fee of $200/trustee paid by
the Adviser in connection with the Fund's organization.

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM
THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......... 3/31 1,253 0 1,253 627 1,253 1,053 627 1,253 0 344
Managed Short-Term
Income Fund........... 3/31 ** ** ** ** ** ** ** ** ** **
Short-Term Global Income
Fund.................. 3/31 866 0 866 433 866 666 433 866 0 220
Strategic Income Fund... 3/31 929 0 929 465 929 729 465 929 0 240
------ -- ------ ------ ------ ------ ------ ------ -- ------
Trust Total........... $3,048 $0 $3,048 $1,525 $3,048 $2,448 $1,525 $3,048 $0 $ 804
</TABLE>

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

** Such trustees received an organizational meeting fee of $200/trustee paid by
the Adviser in connection with the Fund's organization.

B-30
<PAGE> 144

TABLE C

1999 CUMULATIVE COMPENSATION DEFERRED
(PLUS INTEREST) FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund...... 3/31 $ 7,789 $ 0 $ 9,678 $16,380 $22,145 $4,422 $2,941 $18,589 $ 0
Managed Short-Term
Income Fund......... 3/31 0 0 0 0 0 0 0 0 0
Short-Term Global
Income Fund......... 3/31 7,030 0 8,953 15,966 21,293 3,615 2,585 17,822 0
Strategic Income
Fund................ 3/31 7,145 0 9,064 16,029 21,424 3,738 2,640 17,939 0
------- ------- ------- ------- ------- ------- ------ ------- -------
Trust Total......... $21,964 $ 0 $27,695 $48,375 $64,862 $11,775 $8,166 $54,350 $ 0

<CAPTION>
TRUSTEE FORMER TRUSTEES
-------- -------------------------------------
FUND NAME YOVOVICH GAUGHAN MILLER REES ROBINSON
--------- -------- ------- ------ ---- --------
<S> <C> <C> <C> <C> <C>
High Yield Fund...... $ 359 $2,107 $10,065 $2,816 $16,377
Managed Short-Term
Income Fund......... 0 0 0 0 0
Short-Term Global
Income Fund......... 229 2,107 10,065 2,936 16,377
Strategic Income
Fund................ 250 2,107 10,065 2,936 16,377
------- ------ ------- ------ -------
Trust Total......... $ 838 $6,321 $30,195 $8,688 $49,131
</TABLE>

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

* Each Fund recently changed its fiscal year-end from June 30 to March 31. The
information reported herein represents the cumulative deferred compensation,
including interest, as of information for the nine-month fiscal period ended
March 31, 1999. The Managed Short Term Income Fund has not commenced
investment operations as of March 31, 1999.

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
--------------------------------------------------------------------------------------------
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund..................... 1995 1999 1995 1993 1986 1997 1995 1986 1999 1998
Managed Short Term Income Fund...... 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999
Short-Term Global Income Fund....... 1995 1999 1995 1993 1990 1997 1995 1990 1999 1998
Strategic Income Fund............... 1995 1999 1995 1993 1993 1997 1995 1993 1999 1998
</TABLE>

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.

B-31
<PAGE> 145

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 approximately $2,325,800,
$3,298,500 and $3,011,700, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
to the Fund, 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 approximately $25,400, $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

B-32
<PAGE> 146

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 approximately $9,100,
$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
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..................... $528,594 $ 58,735
Fiscal year ended June 30, 1998........................ $653,254 $ 78,100
Fiscal year ended June 30, 1997........................ $725,021 $ 92,626
</TABLE>

B-33
<PAGE> 147

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 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
B-34
<PAGE> 148

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.

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares and 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."

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

B-35
<PAGE> 149

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 $2,430,462 and
$40,883 of unreimbursed distribution-related expenses with respect to Class B
Shares and Class C Shares, respectively, representing 1.80% and 0.28% 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 $493,682 or 0.25% of the Class A
Shares' average daily

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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
$924,109 or 0.92% of the Class B Shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments: $664,177 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class B Shares of the Fund and $259,932 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 $71,972 or 0.79 % of the
Class C Shares' average daily net assets. Such expenses were paid to reimburse
the Distributor for the following payments: $29,407 for commissions and
transaction fees paid to financial intermediaries in respect of sales of Class C
Shares of the Fund and $42,565 for fees paid to financial intermediaries for
servicing Class C shareholders and administering the Class C Share Plans.

The Distributor has entered into agreements with the following firms: (i)
Morgan Stanley Dean Witter, (ii) Merrill Lynch, Pierce, Fenner & Smith Inc.
(iii) Norwest Bank Minnesota, N.A. and (iv) Huntington Bank. Shares of the Fund
will be offered pursuant to such firm's retirement plan alliance program(s).
Trustees and other fiduciaries of retirement plans seeking to invest in multiple
fund families through broker-dealer retirement plan alliance programs should
contact the firms mentioned above for further information concerning the
program(s) including, but not limited to, minimum size and operational
requirements.

TRANSFER AGENT

The Fund's transfer agent, shareholder service agent and 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
approximately $347,700, $458,900 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.

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.

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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 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.

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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.......................... $0 $0 $0
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% 0%
Value of brokerage transactions with affiliate to total
transactions............................................ 0% 0%
</TABLE>

During the fiscal period ended March 31, 1999, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."

INVESTMENT ACCOUNT

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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.

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.

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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.

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.

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EXCHANGE PRIVILEGE

The following information supplements the section in the Fund's Prospectus
under the same heading. Beginning December 1, 1999, all shareholders will be
limited to eight (8) exchanges per fund during a rolling 365-day period.

Exchange privileges will be suspended on a particular fund if more than
eight (8) exchanges out of that fund are made during a rolling 365-day period.
If exchange privileges are suspended, subsequent exchange requests will not be
processed. Exchange privileges will be restored when the account history shows
fewer than eight (8) exchanges in the rolling 365-day period.

This policy change does not apply to money market funds, systematic
exchange plans, or employer-sponsored retirement plans.

REINSTATEMENT PRIVILEGE

A Class A shareholder or Class B shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption 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) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.

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")

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

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<PAGE> 156

$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")

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

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<PAGE> 157

CDSC-Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), the financial hardship of the
employee pursuant to Treasury Regulation Section 401(k)-1(d)(2), or from the
death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.

REDEMPTION PURSUANT TO 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

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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.

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

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be required to recognize any net built-in gains (the excess of aggregate gains,
including items of income, over aggregate losses that would have been realized
if it had been liquidated) in order to qualify as a regulated investment company
in a subsequent year.

Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.

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.

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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 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.

B-47
<PAGE> 161

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.

Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain other
gains or losses attributable to currency exchange rate fluctuations are
typically treated as ordinary income or loss. Such income or loss may increase
or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.

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

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. The maximum long-term
capital gains rate for corporations is 35%.

NON-U.S. SHAREHOLDERS

A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to 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

B-48
<PAGE> 162

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 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.

Final United States Treasury Regulations, effective for payments made after
December 31, 2000, may affect the procedures to be followed by Non-U.S.
Shareholders in establishing foreign status for purposes of the withholding,
backup withholding and information reporting rules. Prospective investors should
consult their tax advisors concerning the applicability and effect of such
Treasury Regulations on an investment in shares of the Fund.

The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.

BACKUP WITHHOLDING

The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to 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

B-49
<PAGE> 163

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 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.

B-50
<PAGE> 164

In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement) and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.

The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.

Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. 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

B-51
<PAGE> 165

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.

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 -6.49%, (ii) the five-year period ended March 31, 1999 was
6.66%, (iii) the ten-year period ended March 31, 1999 was 7.38% and (iv) the
approximately twelve-year,

B-52
<PAGE> 166

nine-month period since June 27, 1986, commencement of distribution for Class A
Shares of the Fund, through March 31, 1999 was 7.84%.

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 161.91%.

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 174.94%.

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 48.39%.

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 49.27%.

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 -3.50%, (ii) the five-year, period ended March
31, 1999 was 6.86%, 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 6.61%.

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 43.35%.

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 43.35%.

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.

B-53
<PAGE> 167

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.

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-54
<PAGE> 168

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen High Yield Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen High Yield Fund (the "Fund"), including the portfolio of investments, as
of March 31, 1999, and the related statement of operations for the nine-month
period ended March 31, 1999 and the year ended June 30, 1998, the statement of
changes in net assets for the nine-month period ended March 31, 1999 and for
each of the years in the two-year period ended June 30, 1998, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian and brokers and by the
application of alternative auditing procedures where broker replies were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen High Yield Fund as of March 31, 1999, the results of its operations for
the nine-month period ended March 31, 1999 and the year ended June 30, 1998, the
changes in its net assets for the nine-month period ended March 31, 1999 and for
each of the years in the two-year period ended June 30, 1998, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.

KPMG LLP

Chicago, Illinois

May 5, 1999

F-1
<PAGE> 169

PORTFOLIO OF INVESTMENTS

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS 73.8%
AEROSPACE & DEFENSE 2.9%
$ 3,120 Compass Aerospace Corp., 144A Private
Placement (a) (g)..................... 10.125% 04/15/05 $ 2,995,200
4,500 Dyncorp............................... 9.500 03/01/07 4,567,500
2,200 Sequa Corp............................ 9.625 10/15/99 2,246,750
2,600 Sequa Corp............................ 9.375 12/15/03 2,697,500
------------
12,506,950
------------
AUTOMOBILE 4.9%
4,750 Aetna Industries, Inc. (g)............ 11.875 10/01/06 4,963,750
2,250 Cambridge Industries, Inc., Series
B..................................... 10.250 07/15/07 1,912,500
2,000 Eagle Picher Industries, Inc.......... 9.375 03/01/08 1,940,000
2,700 Oxford Automotive, Inc., Series C,
144A Private Placement (a)............ 10.125 06/15/07 2,794,500
1,200 Stanadyne Automotive Corp., Series
B..................................... 10.250 12/15/07 1,158,000
4,430 Talon Automotive Group, Inc., Series B
(g)................................... 9.625 05/01/08 3,898,400
4,500 Venture Holdings, Inc................. 9.750 04/01/04 4,432,500
------------
21,099,650
------------
BEVERAGE, FOOD & TOBACCO 3.9%
2,000 Agrilink Foods, Inc., 144A Private
Placement (a) (g)..................... 11.875 11/01/08 2,155,000
1,500 Fleming Cos., Inc. (g)................ 10.625 07/31/07 1,395,000
2,250 Fleming Cos., Inc., Series B (g)...... 10.500 12/01/04 2,120,625
1,700 Jitney Jungle Stores America, Inc..... 12.000 03/01/06 1,895,500
2,750 Luiginos, Inc., 144A Private Placement
(a)................................... 10.000 02/01/06 2,760,312
1,000 National Wine and Spirit, 144A Private
Placement (a)......................... 10.125 01/15/09 1,035,000
5,100 Pantry, Inc. (g)...................... 10.250 10/15/07 5,380,500
------------
16,741,937
------------
BUILDINGS & REAL ESTATE 2.8%
750 Cemex International Capital, Inc...... 9.660 11/29/49 697,500
500 Cemex International Capital, Inc.,
144A Private Placement (a)............ 9.660 12/29/49 465,000
1,000 Formica Corp., 144A Private Placement
(a)................................... 10.875 03/01/09 1,000,000
1,500 Group Maintenance America Corp., 144A
Private Placement (a)................. 9.750 01/15/09 1,537,500
1,750 Home Interiors Gifts, Inc............. 10.125 06/01/08 1,776,250
1,500 Kevco, Inc., Series B................. 10.375 12/01/07 810,000
2,750 Schuler Homes, Inc.................... 9.000 04/15/08 2,653,750
2,075 Webb (Del E.) Corp. (g)............... 9.375 05/01/09 2,023,125
</TABLE>

See Notes to Financial Statements

F-2
<PAGE> 170
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BUILDINGS & REAL ESTATE (CONTINUED)
$ 1,000 Webb (Del E.) Corp.................... 10.250% 02/15/10 $ 1,015,000
------------
11,978,125
------------
CHEMICALS, PLASTICS & RUBBER 1.9%
4,258 ISP Holdings, Inc..................... 9.750 02/15/02 4,407,030
3,210 Pioneer Americas Acquisition Corp.,
Series B (g).......................... 9.250 06/15/07 2,712,450
1,000 United Industries Corp., 144A Private
Placement (a)......................... 9.875 04/01/09 1,030,000
------------
8,149,480
------------
CONSUMER SERVICES 0.4%
1,800 Muzak, Inc., 144A Private Placement
(a)................................... 9.875 03/15/09 1,831,500
------------
CONTAINERS, PACKAGING & GLASS 1.8%
3,700 Fonda Group, Inc., Series B (g)....... 9.500 03/01/07 3,108,000
2,250 Packaging Corp. of America, 144A
Private Placement (a) (f)............. 9.625 04/01/09 2,250,000
1,800 Russell Stanley Holdings, Inc., 144A
Private Placement (a)................. 10.875 02/15/09 1,797,750
370 Sweetheart Cup, Inc................... 9.625 09/01/00 352,425
------------
7,508,175
------------
DIVERSIFIED/CONGLOMERATE
MANUFACTURING 1.1%
4,600 Communications & Power Industries,
Inc. (g).............................. 12.000 08/01/05 4,876,000
------------
ECOLOGICAL 0.2%
500 Envirosource, Inc., Series B.......... 9.750 06/15/03 420,000
550 Norcal Waste Systems, Inc. ........... 13.500 11/15/05 607,750
------------
1,027,750
------------
ELECTRONICS 0.3%
1,950 DecisionOne Corp...................... 9.750 08/01/07 175,500
3,100 DecisionOne Corp. (Including 3,100
common stock warrants) (b)............ 0/11.500 08/01/08 93,000
2,000 Radio Unica Corp. (b) (g)............. 0/11.750 08/01/06 1,132,500
------------
1,401,000
------------
ENERGY 0.7%
1,000 Chesapeake Energy Corp., Series B..... 9.625 05/01/05 835,000
1,000 Houston Exploration Co................ 8.625 01/01/08 1,000,000
</TABLE>

See Notes to Financial Statements

F-3
<PAGE> 171
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY (CONTINUED)
$ 2,200 Universal Compression Holdings, Inc.
(g)................................... 9.875% 02/15/08 $ 1,320,000
------------
3,155,000
------------
FINANCE 1.4%
3,300 Americo Life, Inc., 144A Private
Placement (a) (g)..................... 9.250 06/01/05 3,366,000
1,500 BNP US Funding LLC, Series A, 144A
Private Placement (a)................. 7.738 12/31/49 1,445,850
1,500 Contifinancial Corp................... 8.125 04/01/08 1,125,000
------------
5,936,850
------------
HEALTHCARE 3.8%
2,000 Alliance Imaging, Inc. (g)............ 9.625 12/15/05 1,990,000
1,500 Biovail Corp. International........... 10.875 11/15/05 1,541,250
3,000 Hudson Respiratory Care, Inc. (g)..... 9.125 04/15/08 2,625,000
2,000 King Pharmaceuticals, Inc., 144A
Private Placement (a)................. 10.750 02/15/09 2,070,000
4,500 Mariner Post Acute Network, Inc.
(b)................................... 0/10.500 11/01/07 810,000
1,700 Mariner Post Acute Network, Inc....... 9.500 11/01/07 527,000
2,000 Mediq, Inc............................ 11.000 06/01/08 1,750,000
4,000 Oxford Health Plans, Inc., 144A
Private Placement (a)(g).............. 11.000 05/15/05 4,100,000
1,000 Team Health, Inc., 144A Private
Placement (a)......................... 12.000 03/15/09 1,010,000
------------
16,423,250
------------
HOTEL, MOTEL, INNS & GAMING 2.4%
2,000 Argosy Gaming Co...................... 12.000 06/01/01 2,060,000
3,250 Argosy Gaming Co. (g)................. 13.250 06/01/04 3,684,688
3,000 Majestic Star Casino LLC.............. 12.750 05/15/03 3,330,000
1,000 Mohegan Tribal Gaming Authority, 144A
Private Placement (a)................. 8.125 01/01/06 1,027,500
------------
10,102,188
------------
LEISURE 2.7%
2,100 Booth Creek Ski Holdings, Inc., Series
B (g)................................. 12.500 03/15/07 2,005,500
2,250 Intrawest Corp........................ 9.750 08/15/08 2,320,313
2,000 Premier Parks, Inc.................... 9.250 04/01/06 2,095,000
4,750 Selmer, Inc. (g)...................... 11.000 05/15/05 5,106,250
------------
11,527,063
------------
MACHINERY 0.3%
1,300 Terex Corp., Series C, 144A Private
Placement (a)......................... 8.875 04/01/08 1,283,750
------------
</TABLE>

See Notes to Financial Statements

F-4
<PAGE> 172
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINING, STEEL, IRON & NON-PRECIOUS
METAL 0.9%
$ 2,000 Pen Holdings, Inc., Series B.......... 9.875% 06/15/08 $ 2,070,000
1,950 Renco Steel Holdings, Inc............. 10.875 02/01/05 1,725,750
------------
3,795,750
------------
OIL & GAS 3.2%
2,050 Frontier Oil Corp..................... 9.125 02/15/06 2,009,000
1,150 Giant Industries, Inc................. 9.750 11/15/03 1,138,500
4,450 Giant Industries, Inc. (g)............ 9.000 09/01/07 4,071,750
1,350 KCS Energy, Inc....................... 11.000 01/15/03 931,500
3,700 National Energy Group, Inc., Series D
(e) (g)............................... 10.750 11/01/06 1,258,000
2,200 Pride Petroleum Services, Inc......... 9.375 05/01/07 2,156,000
2,000 Triton Energy Ltd..................... 8.750 04/15/02 1,890,000
------------
13,454,750
------------
PAPER 1.4%
1,800 Pacifica Papers, Inc., 144A Private
Placement (a)......................... 10.000 03/15/09 1,858,500
4,100 Repap New Brunswick, Inc.............. 9.000 06/01/04 3,997,500
------------
5,856,000
------------
PRINTING, PUBLISHING &
BROADCASTING 9.8%
3,000 Capstar Broadcasting Partners (g)..... 9.250 07/01/07 3,180,000
2,750 Capstar Broadcasting Partners......... 12.750 02/01/09 2,337,500
2,500 Century Communications Corp. (g)...... 8.875 01/15/07 2,640,625
1,850 Century Communications Corp........... 8.750 10/01/07 1,944,813
2,600 CSC Holdings, Inc..................... 10.500 05/15/16 3,094,000
3,205 CSC Holdings, Inc. (g)................ 7.875 02/15/18 3,293,137
3,500 EZ Communications, Inc. (g)........... 9.750 12/01/05 3,815,000
3,350 Gray Communications Systems, Inc.
(g)................................... 10.625 10/01/06 3,584,500
2,450 International Cabletel, Inc. (b)...... 0/12.750 04/15/05 2,318,313
2,750 International Cabletel, Inc. (b)...... 0/11.500 02/01/06 2,423,437
4,000 K-III Communications Corp............. 10.250 06/01/04 4,225,000
2,000 Northland Cable Television, Inc....... 10.250 11/15/07 2,140,000
2,500 Pegasus Communications Corp., Series B
(g)................................... 9.625 10/15/05 2,593,750
2,000 Premier Graphics, Inc., 144A Private
Placement (a)......................... 11.500 12/01/05 1,970,000
2,000 Young Broadcasting, Inc............... 11.750 11/15/04 2,150,000
------------
41,710,075
------------
RETAIL 1.1%
1,250 Big 5 Corp., Series B (g)............. 10.875 11/15/07 1,275,000
1,650 Community Distributors, Inc., Series B
(g)................................... 10.250 10/15/04 1,526,250
</TABLE>

See Notes to Financial Statements

F-5
<PAGE> 173
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RETAIL (CONTINUED)
$ 1,750 Hosiery Corp. of America, Inc. (e).... 13.750% 08/01/02 $ 1,890,000
------------
4,691,250
------------
TELECOMMUNICATIONS 21.8%
2,000 AMSC Acquisition, Inc................. 12.250 04/01/08 1,020,000
3,800 Centennial Cellular Operating Co.,
144A Private Placement (a)............ 10.750 12/15/08 4,037,500
1,800 Charter Communications Holdings, 144A
Private Placement (a)................. 8.250 04/01/07 1,845,000
900 Charter Communications Holdings, 144A
Private Placement (a)................. 8.625 04/01/09 922,500
1,100 Citadel Broadcasting Co............... 9.250 11/15/08 1,185,250
1,000 Crown Castle International Corp.
(b)................................... 0/10.625 11/15/07 695,000
1,800 E Spire Communications, Inc. (b)...... 0/13.000 11/01/05 1,305,000
2,280 E Spire Communications, Inc. (b)...... 0/12.750 04/01/06 1,561,800
1,750 E Spire Communications, Inc........... 13.750 07/15/07 1,732,500
2,000 E Spire Communications, Inc. (b)...... 0/10.625 07/01/08 1,010,000
3,000 Echostar DBS Corp., 144A Private
Placement (a) (g)..................... 9.375 02/01/09 3,135,000
2,000 Fairchild Semiconductor Corp., 144A
Private Placement (a) (f)............. 10.375 10/01/07 2,035,000
2,000 Filtronic PLC, 144A Private Placement
(a)................................... 10.000 12/01/05 2,090,000
2,000 Firstworld Communications, Inc. (b)... 0/13.000 04/15/08 770,000
2,000 GST Network Funding, Inc., 144A
Private Placement (a) (b)............. 0/10.500 05/01/08 1,070,000
1,350 Intermedia Communications of Florida,
Inc................................... 13.500 06/01/05 1,542,375
8,690 Intermedia Communications, Inc. (b)... 0/11.250 07/15/07 6,647,850
5,000 Intermedia Communications, Inc. ...... 8.600 06/01/08 5,037,500
2,000 KMC Telecommunications Holdings,
Inc. (b).............................. 0/12.500 02/15/08 1,110,000
3,000 Level 3 Communications, Inc., 144A
Private Placement (a) (b)............. 0/10.500 12/01/08 1,890,000
2,000 Metromedia Fiber Network, Inc., 144A
Private Placement (a)................. 10.000 11/15/08 2,155,000
2,000 MJD Communications, Inc. ............. 9.500 05/01/08 2,030,000
2,250 Nextel Communications, Inc. .......... 9.750 08/15/04 2,340,000
2,250 Nextel Communications, Inc. (b)....... 0/10.650 09/15/07 1,641,737
2,500 Optel, Inc. .......................... 11.500 07/01/08 2,312,500
1,000 Park N View, Inc., Series B........... 13.000 05/15/08 570,000
4,625 Pinnacle Holdings, Inc. (b) (g)....... 0/10.000 03/15/08 2,809,688
3,548 Price Communication Cellular (d)...... 11.250 08/15/08 3,441,560
</TABLE>

See Notes to Financial Statements

F-6
<PAGE> 174
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 2,000 Price Communications Wireless......... 11.750% 07/15/07 $ 2,210,000
1,250 Primus Telecommunications Group, 144A
Private Placement (a)................. 11.250 01/15/09 1,290,625
3,000 PSINet, Inc. ......................... 11.500 11/01/08 3,390,000
2,500 RSL Communications (b)................ 0/10.125 03/01/08 1,637,500
3,750 SBA Communications Corp. (b).......... 0/12.000 03/01/08 2,381,250
3,500 Splitrock Services, Inc., Series B.... 11.750 07/15/08 3,342,500
2,000 Sprint Spectrum (b)................... 0/12.500 08/15/06 1,825,000
3,000 Startec Global Communications......... 12.000 05/15/08 2,745,000
2,000 Telecommunications Techniques (g)..... 9.750 05/15/08 2,030,000
4,000 Triton Communications, Inc. (b)....... 0/11.000 05/01/08 2,380,000
7,550 United International Holdings, Inc.
(g)................................... 10.750 02/15/08 5,171,750
2,415 Verio, Inc. (g)....................... 10.375 04/01/05 2,596,125
1,000 Verio, Inc., 144A Private
Placement (a)......................... 11.250 12/01/08 1,130,000
3,250 Viatel, Inc. (b) (f).................. 0/12.500 04/15/08 2,047,500
1,000 Viatel, Inc. (EUR) (f)................ 11.500 03/15/09 1,123,148
------------
93,243,158
------------
TEXTILES 1.7%
2,000 Cluett American Corp., Series B....... 10.125 05/15/08 1,840,000
3,000 Globe Manufacturing Corp. ............ 10.000 08/01/08 2,385,000
1,500 Scovill Fasteners, Inc., Series B..... 11.250 11/30/07 1,155,000
500 Simmons Co., 144A Private
Placement (a)......................... 10.250 03/15/09 519,375
1,350 Supreme International, Inc., 144A
Private Placement (a) (f)............. 12.250 04/01/06 1,334,502
------------
7,233,877
------------
TRANSPORTATION 1.1%
3,000 Atlas Air, Inc. (g)................... 9.250 04/15/08 2,985,000
1,750 Atlas Air, Inc., 144A Private
Placement (a)......................... 9.375 11/15/06 1,767,500
------------
4,752,500
------------
UTILITIES 1.3%
2,250 AES Corp. (g)......................... 10.250 07/15/06 2,385,000
600 El Paso Electric Co. ................. 8.250 02/01/03 634,500
1,500 El Paso Electric Co. ................. 8.900 02/01/06 1,680,000
748 Midland Funding Corp. ................ 10.330 07/23/02 796,147
------------
5,495,647
------------
TOTAL DOMESTIC CORPORATE BONDS 73.8%..................... 315,781,675
------------
</TABLE>

See Notes to Financial Statements

F-7
<PAGE> 175
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

1,000 Banco de Galicia Y Buenos Aires (US$),
144A Private Placement (a)............ 10.000% 12/15/00 $ 1,012,500
3,000 CTI Holdings SA (US$) (b)............. 0/11.500 04/15/08 1,650,000
875 Republic of Argentina (US$)........... 11.000 12/04/05 831,250
3,000 Republic of Argentina (US$) (f)....... 11.750 04/07/09 2,925,000
1,000 Republic of Argentina (Var. Rate
Coupon) (US$)......................... 6.063 03/31/23 735,000
------------
7,153,750
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$)....... 10.000 10/15/02 808,059
------------
BRAZIL 1.4%
5,888 Federal Republic of Brazil (Var. Rate
Coupon) (US$)......................... 8.000 04/15/14 3,761,024
400 Globo Participacoe (US$), 144A Private
Placement (a)......................... 10.625 12/05/08 266,000
1,000 Globo Participacoe (US$).............. 10.625 12/05/08 665,000
500 Multicanal Participacoes (US$)........ 12.625 06/18/04 432,500
1,200 Multicanal Participacoes, Series B
(US$)................................. 12.625 06/18/04 1,038,000
------------
6,162,524
------------
CANADA 4.7%
2,000 Clearnet Communications, Inc.
(US$) (b)............................. 0/14.750 12/15/05 1,860,000
3,500 Fundy Cable Ltd. (US$) (g)............ 11.000 11/15/05 3,806,250
1,000 Hurricane Hydrocarbons (US$).......... 11.750 11/01/04 460,000
2,000 Metronet Communications Corp. (US$)... 12.000 08/15/07 2,385,000
5,500 Metronet Communications Corp.
(US$) (b)............................. 0/9.950 06/15/08 4,276,250
3,000 Microcell Telecommunications, Series B
(US$) (b)............................. 0/14.000 06/01/06 2,475,000
4,500 Trizec Finance (US$) (g).............. 10.875 10/15/05 4,882,500
------------
20,145,000
------------
CAYMAN ISLANDS 0.5%
2,000 PDVSA Finance Ltd. (US$), 144A Private
Placement (a) (f)..................... 8.750 02/15/04 1,993,140
------------
CHILE 0.2%
2,000 Empresa Electrica Delaware Norte SA
(US$), 144A Private Placement (a)..... 7.750 03/15/06 1,040,000
------------
COLUMBIA 1.7%
2,300 Financiera Energetica (US$), 144A
Private Placement (a)................. 9.375 06/15/06 2,024,000
2,500 Financiera Energetica (US$)........... 9.375 06/15/06 2,200,000
</TABLE>

See Notes to Financial Statements

F-8
<PAGE> 176
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLUMBIA (CONTINUED)
1,250 Republic of Colombia (DEM)............ 4.479% 11/21/01 $ 606,390
2,500 Republic of Colombia (US$)............ 10.986 08/13/05 2,281,250
------------
7,111,640
------------
FRANCE 0.4%
2,000 Credit Lyonnais (Var. Rate Coupon)
(US$)................................. 6.313 09/19/49 1,860,000
------------
HUNGARY 0.2%
216,650 Hungary Govt (HUF).................... 16.000 11/24/00 939,126
------------
ITALY 0.2%
775 Federal Republic of Italy (EUR)....... 10.000 08/01/03 1,056,080
------------
KOREA 0.4%
1,200 Korea Development Bank (DEM).......... 5.625 10/25/99 661,742
1,000 Korea Electric Power Corp. (US$)...... 7.000 02/01/27 934,700
------------
1,596,442
------------
LUXEMBOURG 0.7%
4,000 Millicom International Cellular SA
(US$) (b) (g)......................... 0/13.500 06/01/06 3,000,000
------------
MEXICO 3.0%
1,000 Gruma SA (US$)........................ 7.625 10/15/07 890,000
3,000 Grupo Televisa Corp. (US$) (b)........ 0/13.250 05/15/08 2,527,500
1,000 Mexico Par Bond, Series A (US$)....... 6.250 12/31/19 785,625
2,000 Petroleos Mexicanos (US$), 144A
Private Placement (a)................. 9.857 07/15/05 1,860,000
5,000 Satelites Mexicanos SA (US$), 144A
Private Placement (a)................. 10.125 11/01/04 4,125,000
1,000 United Mexican States (US$)........... 10.375 02/17/09 1,033,750
750 United Mexican States (US$)........... 6.250 12/31/19 589,219
1,000 Vicap SA (US$)........................ 10.250 05/15/02 975,000
------------
12,786,094
------------
MOROCCO 0.9%
4,762 Morocco Trust A Loan (US$) (c)........ 6.063 01/01/09 3,877,976
------------
PANAMA 0.9%
4,000 Republic of Panama (US$).............. 8.875 09/30/27 3,660,000
------------
POLAND 1.0%
2,250 Netia Holdings, Inc., Series B
(US$) (b)............................. 0/11.250 11/01/07 1,552,500
3,000 Netia Holdings, Inc. (US$)............ 10.250 11/01/07 2,865,000
------------
4,417,500
------------
RUSSIA 0.7%
1,000 Russia Principal Loans (US$).......... 11.000 07/24/18 260,000
22,750 Russia Principal Loans
(US$) (c) (d)......................... 5.969 12/15/20 1,649,375
</TABLE>

See Notes to Financial Statements

F-9
<PAGE> 177
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

See Notes to Financial Statements

F-10
<PAGE> 178
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------
<S> <C>
EQUITIES 1.0%
American Mobile Satellite Corp., (2,000 common stock warrants) 144A
Private Placement (a) (e)............................................. $ 50,000
American Telecasting, Inc. (8,370 common stock warrants) (e)............ 8,370
Coastal Finance, Inc. (40,000 preferred shares)......................... 1,000,000
Crown Castle International Corp. (2,064 preferred shares) (d)........... 2,259,806
Firstworld Communications, Inc., (2,000 common stock warrants) 144A
Private Placement (a) (e)............................................. 20,000
Hosiery Corp. of America, Inc., (1,000 common shares)................... 40,500
Intermedia Communications of Florida, Inc., (3,150 common stock
warrants), 144A Private Placement (a) (e)............................. 288,115
KMC Telecommunications Holdings, Inc., (1,000 common stock warrants)
144A Private Placement (a) (e)........................................ 10,000
Meditrust (3,867 common stock warrants) (e)............................. 47,854
NTL, Inc., (5,178 common stock warrants) 144A Private
Placement (a) (e)..................................................... 310,473
Park N View, Inc., (1,000 common stock warrants) 144A Private
Placement (a) (e)..................................................... 13,000
Republic of Argentina (875 bond warrants) (e)........................... 34,125
Splitrock Services, Inc., (3,500 common stock warrants) 144A Private
Placement (a) (e)..................................................... 227,500
Star Gas Partners LP (441 common shares)................................ 6,226
Startec Global Communications (3,000 common stock warrants) (e)......... 3,000
United Mexican States (1,000 bond warrants) (US$) (e)................... 35,000
Urohealth Systems, Inc., (2,550 common stock warrants) 144A Private
Placement (a) (e)..................................................... 0
------------
TOTAL EQUITIES.......................................................... 4,353,969
------------
</TABLE>

See Notes to Financial Statements

F-11
<PAGE> 179
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $439,646,882)................................................... $417,468,287
SHORT-TERM INVESTMENTS 5.6%
State Street Bank and Trust Repurchase Agreement (Collateralized by
U.S. T-Note, $14,990,000 par, 13.25% coupon, due 05/15/14, dated
03/31/99, to be sold on 04/01/99 at $23,932,224) (Cost $23,929,000)... 23,929,000
------------
TOTAL INVESTMENTS 103.1%
(Cost $463,575,882)................................................... 441,397,287
LIABILITIES IN EXCESS OF OTHER ASSETS (3.1%)........................... (13,434,232)
------------
NET ASSETS 100.0%...................................................... $427,963,055
============
</TABLE>

(a) 144A Securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.

(b) Security is a "Step-up" bond where the coupon increases or steps up at a
pre-determined date.

(d) Payment-in-Kind Security.

(e) Non-income producing security.

(f) Securities purchased on a when issued or delayed delivery basis.

(g) Assets segregated as collateral for open options transactions, futures
transactions or when issued or delayed delivery purchase commitments.

See Notes to Financial Statements

F-12
<PAGE> 180

STATEMENT OF ASSETS AND LIABILITIES

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $463,575,882)....................... $441,397,287
Cash........................................................ 279
Receivables:
Interest.................................................. 10,205,211
Investments Sold.......................................... 2,115,666
Fund Shares Sold.......................................... 649,055
Variation Margin on Futures............................... 40,000
Options at Market Value (Net premiums paid of $33,613)...... 26,563
Other....................................................... 10,756
------------
Total Assets.......................................... 454,444,817
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 23,269,159
Income Distributions...................................... 1,843,581
Fund Shares Repurchased................................... 393,794
Distributor and Affiliates................................ 338,702
Investment Advisory Fee................................... 241,922
Accrued Expenses............................................ 241,606
Trustees' Deferred Compensation and Retirement Plans........ 152,998
------------
Total Liabilities..................................... 26,481,762
------------
NET ASSETS.................................................. $427,963,055
============
NET ASSETS CONSIST OF:
Capital..................................................... $550,655,957
Accumulated Distributions in Excess of Net Investment
Income.................................................... (2,433,418)
Net Unrealized Depreciation................................. (22,324,238)
Accumulated Net Realized Loss............................... (97,935,246)
------------
NET ASSETS.................................................. $427,963,055
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $277,921,376 and 30,761,644 shares of
beneficial interest issued and outstanding)............. $ 9.03
Maximum sales charge (4.75%* of offering price)......... .45
------------
Maximum offering price to public........................ $ 9.48
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $135,389,202 and 14,990,680 shares of
beneficial interest issued and outstanding)............. $ 9.03
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,652,477 and 1,623,895 shares of
beneficial interest issued and outstanding)............. $ 9.02
============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>

See Notes to Financial Statements

F-13
<PAGE> 181

STATEMENT OF OPERATIONS

For the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $5,113
for the nine months ended 3/31/99 and $7,881 for the
year ended 6/30/98)................................. $ 30,971,247 $ 40,758,538
Dividends............................................. 383,121 951,901
Other................................................. 90,486 1,196,387
------------- -------------
Total Income...................................... 31,444,854 42,906,826
------------- -------------
EXPENSES:
Investment Advisory Fee............................... 2,325,843 3,298,466
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B, and C of $477,598, $1,003,243, and
$91,166, respectively, for the nine months ended
3/31/99 and $687,422, $1,410,829, and $98,799,
respectively, for the year ended 6/30/98)........... 1,572,007 2,197,050
Shareholder Services.................................. 502,766 644,982
Custody............................................... 93,034 120,938
Trustees' Fees and Expenses........................... 26,730 31,475
Legal................................................. 30,140 28,850
Other................................................. 212,486 297,676
------------- -------------
Total Expenses.................................... 4,763,006 6,619,437
Investment Advisory Fee Reduction................. 310,112 439,795
------------- -------------
Net Expenses...................................... 4,452,894 6,179,642
------------- -------------
NET INVESTMENT INCOME................................. $ 26,991,960 $ 36,727,184
============= =============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments....................................... $(11,634,256) $ 9,805,802
Options........................................... (53,687) (104,912)
Futures........................................... 62,668 497,291
Forwards.......................................... (90,210) 46,182
Foreign Currency Transactions..................... (105,603) (6,359)
------------- -------------
Net Realized Gain/Loss................................ (11,821,088) 10,238,004
------------- -------------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................. 2,966,018 11,798,356
------------- -------------
End of the Period:
Investments....................................... (22,178,595) 3,058,778
Options........................................... (7,050) (5,525)
Futures........................................... (133,125) (87,188)
Foreign Currency Translation...................... (5,468) (47)
------------- -------------
(22,324,238) 2,966,018
------------- -------------
Net Unrealized Depreciation During the Period......... (25,290,256) (8,832,338)
------------- -------------
NET REALIZED AND UNREALIZED GAIN/LOSS................. $(37,111,344) $ 1,405,666
============= =============
NET INCREASE/DECREASE IN NET ASSETS FROM OPERATIONS... $(10,119,384) $ 38,132,850
============= =============
</TABLE>

See Notes to Financial Statements

F-14
<PAGE> 182

STATEMENT OF CHANGES IN NET ASSETS

For the Nine Months Ended March 31, 1999 and
the Years Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
March 31, 1999 June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 26,991,960 $ 36,727,184 $ 34,529,017
Net Realized Gain/Loss........................... (11,821,088) 10,238,004 9,725,173
Net Unrealized Appreciation/Depreciation During
the Period...................................... (25,290,256) (8,832,338) 6,256,307
------------ ------------ ------------
Change in Net Assets from Operations............. (10,119,384) 38,132,850 50,510,497
------------ ------------ ------------
Distributions from Net Investment Income......... (26,991,960) (36,588,695) (34,529,017)
Distributions in Excess of Net Investment
Income.......................................... (748,041) -0- (412,288)
------------ ------------ ------------
Distributions from and in Excess of Net
Investment Income*.............................. (27,740,001) (36,588,695) (34,941,305)
Return of Capital Distribution*.................. -0- -0- (612,243)
------------ ------------ ------------
Total Distributions.............................. (27,740,001) (36,588,695) (35,553,548)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (37,859,385) 1,544,155 14,956,949
------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 127,864,335 141,976,974 151,222,275
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 11,396,598 14,616,655 13,768,097
Cost of Shares Repurchased....................... (110,498,564) (145,829,346) (130,375,583)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 28,762,369 10,764,283 34,614,789
------------ ------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............ (9,097,016) 12,308,438 49,571,738
NET ASSETS:
Beginning of the Period.......................... 437,060,071 424,751,633 375,179,895
------------ ------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $2,433,418, $1,685,377, and $1,905,853,
respectively)................................... $427,963,055 $437,060,071 $424,751,633
============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class March 31, 1999 June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in
Excess of
Net Investment Income:
Class A Shares.............. $(18,518,999) $ (24,757,453) $(24,888,535)
Class B Shares.............. (8,450,628) (11,057,055) (9,438,468)
Class C Shares.............. (770,374) (774,187) (614,302)
------------ ------------- ------------
$(27,740,001) $ (36,588,695) $(34,941,305)
============ ============= ============
Return of Capital
Distribution:
Class A Shares.............. $ -0- $ -0- $ (430,710)
Class B Shares.............. -0- -0- (170,818)
Class C Shares.............. -0- -0- (10,715)
------------ ------------- ------------
$ -0- $ -0- $ (612,243)
============ ============= ============
</TABLE>

See Notes to Financial Statements

F-15
<PAGE> 183

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Year Ended June 30
Ended -----------------------------------------------
Class A Shares March 31, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380
------- ------- ------- ------- ------- -------
Net Investment Income...... .619 .857 .857 .878 .844 .908
Net Realized and Unrealized
Gain/Loss................ (.848) .037 .384 .147 (.099) (.595)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. (.229) .894 1.241 1.025 .745 .313
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .630 .855 .865 .880 .815 .950
Return of Capital
Distribution............. -0- -0- .015 .050 .175 .100
------- ------- ------- ------- ------- -------
Total Distributions.......... .630 .855 .880 .930 .990 1.050
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 9.034 $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643
======= ======= ======= ======= ======= =======
Total Return* (a)............ (2.13%)** 9.36% 13.60% 11.26% 8.50% 2.92%
Net Assets at End of the
Period (In millions)....... $ 277.9 $ 280.6 $ 288.0 $ 271.1 $ 253.3 $ 260.7
Ratio of Expenses to Average
Net Assets*................ 1.17% 1.14% 1.17% 1.31% 1.31% 1.32%
Ratio of Net Investment
Income to Average Net
Assets*.................... 8.98% 8.61% 8.83% 9.16% 9.13% 8.85%
Portfolio Turnover........... 104%** 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................. 1.27% 1.24% 1.26% 1.31% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... 8.88% 8.51% 8.73% 9.15% 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 Notes to Financial Statements

F-16
<PAGE> 184
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Nine Months Year Ended June 30,
Ended -----------------------------------------------
Class B Shares March 31, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $ 9.890 $ 9.855 $ 9.497 $ 9.398 $ 9.638 $10.382
------- ------- ------- ------- ------- -------
Net Investment Income...... .560 .782 .777 .797 .788 .889
Net Realized and Unrealized
Gain/Loss................ (.842) .036 .389 .160 (.115) (.665)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. (.282) .818 1.166 .957 .673 .224
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .576 .783 .794 .812 .751 .877
Return of Capital
Distribution............. -0- -0- .014 .046 .162 .091
------- ------- ------- ------- ------- -------
Total Distributions.......... .576 .783 .808 .858 .913 .968
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 9.032 $ 9.890 $ 9.855 $ 9.497 $ 9.398 $ 9.638
======= ======= ======= ======= ======= =======
Total Return* (a)............ (2.71%)** 9.28% 12.64% 10.55% 7.61% 2.11%
Net Assets at End of the
Period (In millions)....... $ 135.4 $ 145.0 $ 128.7 $ 97.1 $ 55.9 $ 33.2
Ratio of Expenses to Average
Net Assets*................ 1.93% 1.91% 1.93% 2.07% 2.04% 2.13%
Ratio of Net Investment
Income to Average Net
Assets*.................... 8.19% 7.84% 8.03% 8.39% 8.35% 7.94%
Portfolio Turnover........... 104%** 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................. 2.03% 2.01% 2.02% 2.07% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... 8.09% 7.74% 7.94% 8.38% N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.

N/A -- Not applicable.

See Notes to Financial Statements

F-17
<PAGE> 185
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
Nine Months Year Ended June 30, (Commencement of
Ended --------------------------------- Distribution) to
Class C Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 9.884 $9.851 $9.495 $9.396 $9.643 $10.340
------- ------ ------ ------ ------ -------
Net Investment Income..... .562 .780 .780 .828 .745 .761
Net Realized and
Unrealized Gain/Loss.... (.847) .036 .384 .129 (.079) (.605)
------- ------ ------ ------ ------ -------
Total from Investment
Operations................ (.285) .816 1.164 .957 .666 .156
------- ------ ------ ------ ------ -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .576 .783 .794 .812 .751 .763
Return of Capital
Distribution............ -0- -0- .014 .046 .162 .090
------- ------ ------ ------ ------ -------
Total Distributions......... .576 .783 .808 .858 .913 .853
------- ------ ------ ------ ------ -------
Net Asset Value, End of
Period.................... $ 9.023 $9.884 $9.851 $9.495 $9.396 $ 9.643
======= ====== ====== ====== ====== =======
Total Return* (b)........... (2.71%)** 8.47% 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)............. $ 14.7 $11.5 $8.1 $7.0 $2.0 $ 2.2
Ratio of Expenses to Average
Net Assets*............... 1.93% 1.91% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment
Income to Average Net
Assets*................... 8.25% 7.83% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover.......... 104%** 154% 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................ 2.03% 2.01% 2.03% 2.07% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 8.15% 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
maximum sales charge or contingent deferred sales charge.

N/A -- Not applicable.

See Notes to Financial Statements

F-18
<PAGE> 186

NOTES TO FINANCIAL STATEMENTS

March 31, 1999
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Fund (the "Fund"), is organized as a series of Van Kampen
Trust, a Delaware business trust (the "Trust"), and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's primary investment objective is to provide a
high level of current income through investment in medium and lower grade
domestic corporate debt securities. The Fund also may invest up to 35% of its
assets in foreign government and corporate debt securities of comparable
quality. The Fund commenced investment operations on June 27, 1986. The Fund
commenced distribution of its Class B and C shares on May 17, 1993 and August
13, 1993, respectively. In July, 1998, the Fund's Board of Trustees approved a
change in the Fund's fiscal year end from June 30 to March 31. As a result, this
financial report reflects the nine-month period commencing on July 1, 1998, and
ending on March 31, 1999.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. SECURITY VALUATION--Investments are stated at value using market quotations
or indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available valuations are obtained
from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days or
less are valued at amortized cost.

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal

F-19
<PAGE> 187
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

to the amount of the when issued or delayed delivery purchase commitments until
payment is made.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.

C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Bond discount is amortized
over the expected life of each applicable security. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.

D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required. Although the
Fund's fiscal year end was recently changed from June 30 to March 31, the Fund's
tax year end remains June 30.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $85,906,541, which will expire between June 30, 1999 and
June 30, 2004. Of this amount, $39,385,731 will expire on June 30, 1999. Net
realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of the difference in the Fund's tax year end, wash sales,
and mark to market on futures contracts at June 30, 1998.
At March 31, 1999, for federal income tax purposes, the cost of long- and
short-term investments is $464,304,230; the aggregate gross unrealized
appreciation is

F-20
<PAGE> 188
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

$10,497,938 and the aggregate gross unrealized depreciation is $33,404,881,
resulting in net unrealized depreciation on long- and short-term investments of
$22,906,943.

E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on foreign currency
transactions. These gains and losses are included as net realized gains and
losses for financial reporting purposes.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1998 fiscal year have been identified and appropriately reclassified.
For the year ended June 30, 1998, permanent book and tax basis differences
relating to the recognition of net realized gains on foreign currency
transactions of $81,987 were reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's taxable year (June 30). Therefore, while it is
likely that a portion of the Fund's distribution will ultimately be
characterized as a return of capital for tax purposes, no such designation has
been made for the nine months ended March 31, 1999.

F. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.

F-21
<PAGE> 189
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

G. BANK LOAN PARTICIPATIONS--The Fund invests in participation interests of
loans to foreign entities. When the Fund purchases a participation of a foreign
loan interest, the Fund typically enters into a contractual agreement with the
lender or other third party selling the participation, but not with the borrower
directly. As such, the Fund assumes credit risk for the borrower, selling
participant or other persons positioned between the Fund and the borrower.

AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
First $500 million................................. .75 of 1%
Over $500 million.................................. .65 of 1%

For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Adviser waived a portion of its advisory fee. This waiver is voluntary and
may be discontinued at any time.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $14,600 and $15,900, respectively,
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $34,500 and $55,000, respectively,
representing Van Kampen Funds Inc.'s or its affiliates' (collectively "Van
Kampen") cost of providing accounting and legal services to the Fund.
Additionally, for the year ended June 30, 1998, the Fund reimbursed Van
Kampen approximately $19,600 related to the direct cost of consolidating the Van
Kampen open-end fund complex. Payment was contingent upon the realization by the
Fund of cost efficiencies resulting from the consolidation.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the nine months
ended March 31, 1999 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $347,700 and $458,900, respectively. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.

F-22
<PAGE> 190
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.

3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized. At March 31, 1999, capital aggregated
$391,207,193, $144,042,232 and $15,406,532 for Class A, B and C shares,
respectively. For the nine months ended March 31, 1999, transactions were as
follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 8,548,658 $ 77,472,960
Class B.................................... 4,618,109 42,170,273
Class C.................................... 916,995 8,221,102
----------- -------------
Total Sales.................................. 14,083,762 $ 127,864,335
=========== =============
Dividend Reinvestment:
Class A.................................... 850,491 $ 7,690,242
Class B.................................... 364,542 3,296,841
Class C.................................... 45,353 409,515
----------- -------------
Total Dividend Reinvestment.................. 1,260,386 $ 11,396,598
=========== =============
Repurchases:
Class A.................................... (6,997,669) $ (63,522,912)
Class B.................................... (4,654,114) (42,458,339)
Class C.................................... (501,047) (4,517,313)
----------- -------------
Total Repurchases............................ (12,152,830) $(110,498,564)
=========== =============
</TABLE>

F-23
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At June 30, 1998, capital aggregated $369,566,903, $141,033,457 and
$11,293,228 for Class A, B and C shares, respectively. For the year ended June
30, 1998, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 8,945,784 $ 89,317,500
Class B.................................... 4,588,921 45,799,499
Class C.................................... 687,284 6,859,975
----------- -------------
Total Sales.................................. 14,221,989 $ 141,976,974
=========== =============
Dividend Reinvestment:
Class A.................................... 997,599 $ 9,948,016
Class B.................................... 427,244 4,261,071
Class C.................................... 40,893 407,568
----------- -------------
Total Dividend Reinvestment.................. 1,465,736 $ 14,616,655
=========== =============
Repurchases:
Class A.................................... (10,812,030) $(107,994,896)
Class B.................................... (3,408,945) (33,992,220)
Class C.................................... (385,647) (3,842,230)
----------- -------------
Total Repurchases............................ (14,606,622) $(145,829,346)
=========== =============
</TABLE>

F-24
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $378,296,283, $124,965,107 and
$7,867,915 for Class A, B and C shares, respectively. For the year ended June
30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 9,665,241 $ 93,909,024
Class B.................................... 5,509,891 53,363,176
Class C.................................... 406,766 3,950,075
----------- -------------
Total Sales.................................. 15,581,898 $ 151,222,275
=========== =============
Dividend Reinvestment:
Class A.................................... 1,014,981 $ 9,862,811
Class B.................................... 369,698 3,593,610
Class C.................................... 32,085 311,676
----------- -------------
Total Dividend Reinvestment.................. 1,416,764 $ 13,768,097
=========== =============
Repurchases:
Class A.................................... (10,008,711) $ (97,324,996)
Class B.................................... (3,049,089) (29,617,644)
Class C.................................... (353,416) (3,432,943)
----------- -------------
Total Repurchases............................ (13,411,216) $(130,375,583)
=========== =============
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 3.75% None
Third........................................ 3.50% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>

F-25
<PAGE> 193
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

For the nine months ended March 31, 1999 and the year ended June 30, 1998,
Van Kampen, as Distributor for the Fund, received commissions on sales of the
Fund's Class A shares of approximately $59,200 and $78,100, respectively, and
CDSC on redeemed shares of approximately $297,900 and $342,100, respectively.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS
For the nine months ended March 31, 1999, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $449,913,313
and $411,248,128, respectively. For the year ended June 30, 1998, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments were $657,401,849 and $607,133,236, respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration, or generate potential gain. All of the Fund's
portfolio holdings, including derivative instruments, are marked to market each
day with the change in value reflected in unrealized appreciation/depreciation.
Upon disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.

A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.

F-26
<PAGE> 194
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Transactions in options for the year ended June 30, 1998 and the nine months
ended March 31, 1999, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................... 0 $ 0
Options Written and Purchased (Net)........... 700 (179,977)
Options Terminated in Closing Transactions
(Net)...................................... (200) 60,976
Options Expired (Net)......................... (200) 117,226
---- ---------
Outstanding at June 30, 1998.................... 300 (1,775)
Options Written and Purchased (Net)........... 900 (61,108)
Options Terminated in Closing Transactions
(Net)...................................... (600) (7,075)
Options Expired (Net)......................... (500) 36,345
---- ---------
Outstanding at March 31, 1999................... 100 $ (33,613)
==== =========
</TABLE>

The related futures contracts of the outstanding option transactions as of
March 31, 1999, and the descriptions and market values are as follows:

<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- -------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Options
May 1999--Purchased Put..... 100 Dec/118 $26,563
--- --------
</TABLE>

B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract could be in excess of the variation margin
reflected on the Statement of Assets and Liabilities.

F-27
<PAGE> 195
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Transactions in futures contracts for the year ended June 30, 1998 and the
nine months ended March 31, 1999, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997........................ -0-
Futures Opened.................................... 1,675
Futures Closed.................................... (1,575)
------
Outstanding at June 30, 1998........................ 100
Futures Opened.................................... 3,583
Futures Closed.................................... (3,433)
------
Outstanding at March 31, 1999....................... 250
------
</TABLE>

The futures contracts outstanding as of March 31, 1999, and the descriptions
and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Euro Bond Future Sept. 1999
(Current notional value $237,238 per
contract)................................. 150 $(133,125)
SHORT CONTRACTS:
U.S. Treasury Bond Future June 1999
(Current notional value $120,563 per
contract)................................. 100 -0-
--- ---------
250 $(133,125)
--- ----------
</TABLE>

C. FORWARD CURRENCY CONTRACTS--These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.

D. SWAP TRANSACTIONS--These securities represent an agreement between two
parties to exchange a series of cash flows based upon various indices at
specified intervals. During the period ended, March 31, 1999, the Fund made net
payments of $936,983 on a Merrill Lynch High Yield Master Index swap which is
included as a component of interest income. There were no open swap transactions
at March 31, 1999.

F-28
<PAGE> 196
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

The Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the nine months ended March 31, 1999 and the year ended June 30, 1998,
are payments retained by Van Kampen of approximately $708,100 and $1,017,300,
respectively.

F-29
<PAGE> 197

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 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-23
Investment Restrictions..................................... B-32
Trustees and Officers....................................... B-34
Investment Advisory Agreement............................... B-45
Other Agreements............................................ B-46
Distribution and Service.................................... B-47
Transfer Agent.............................................. B-51
Portfolio Transactions and Brokerage Allocation............. B-51
Shareholder Services........................................ B-53
Redemption of Shares........................................ B-56
Contingent Deferred Sales Charge-Class A.................... B-56
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-57
Taxation.................................................... B-59
Fund Performance............................................ B-64
Other Information........................................... B-68
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-11
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JULY 29, 1999.

<PAGE> 198

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.

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

B-2
<PAGE> 199

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.

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER JULY 8, 1999 SHARES OWNERSHIP
-------------------------- ------------ -------- ----------
<S> <C> <C> <C>
Xerox Financial Services....................... 1,430,628.98 A 20.48%
Life Insurance Company
1 Tower Lane, #3000
Villa Park, IL 60181
</TABLE>

B-3
<PAGE> 200

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER JULY 8, 1999 SHARES OWNERSHIP
-------------------------- ------------ -------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company,...................... 416,343.23 A 5.96%
2800 Post Oak Blvd. 51,425.16 B 16.97%
Houston, Texas 77056
J.C. Bradford & Co. Cust FBO................... 13,370.73 C 33.53%
Mary A. Murphy
330 Commerce St.
Nashville, TN 37201-1899
Davenport & Co. LLC FBO........................ 12,442.50 C 31.20%
Rountree Construction Co. Inc.
Attn James R. Rountree
P.O. Box 5369
Suffolk, VA 23435-0369
J.C. Bradford & Co. Cust FBO................... 4,357.08 C 10.93%
Mary Alice Murphy
330 Commerce St.
Nashville, TN 37201-1899
Donaldson Lufkin Jenrette Securities Corp., 3,640.05 C 9.13%
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

The Fund may engage in repurchase agreements with banks or broker-dealers
for investment purposes and in order to earn a return on temporarily available
cash. A repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Fund may enter into repurchase
agreements with 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

B-4
<PAGE> 201

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

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.

B-5
<PAGE> 202

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 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, 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.

B-6
<PAGE> 203

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

B-7
<PAGE> 204

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 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. 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.

B-8
<PAGE> 205

U.S. GOVERNMENT SECURITIES

Securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), including
the principal components or the interest components issued by the U.S.
government under the Separate Trading of Registered Interest and Principal of
Securities program (i.e., "STRIPS"), all of which are backed by the full faith
and credit of the United States; and (2) obligations issued or guaranteed by
U.S. government agencies or instrumentalities, including government issued or
guaranteed mortgage-backed securities, some of which are backed by the full
faith and credit of the U.S. Treasury, some of which are supported by the right
of the issuer to borrow from the U.S. government and some of which are backed
only by the credit of the instrumentality. U.S. government securities are
considered among the most creditworthy of fixed-income investments; however, the
yields on U.S. government securities generally are lower than yields available
from corporate debt securities.

TREASURY INFLATION-PROTECTED SECURITIES

The Fund may invest in U.S. Treasury inflation-protected securities
("TIPS") that are designed to provide an investment vehicle that is not
vulnerable to inflation. The coupon interest rate as a percentage of principal
for these securities is established in an open auction process and then remains
constant over the life of the security. The principal value rises or falls
semi-annually based upon changes in the Consumer Price Index. If inflation
occurs, the principal and interest payments on TIPS are adjusted to protect
investors from inflationary loss. If deflation occurs, the principal and
interest payments will be adjusted downward, although the principal will not
fall below its face amount at maturity. Holders of TIPS are taxed on the
interest income received, as well as on the increase in principal that is due to
the inflation adjustment. As a result, the after-tax annual yield on TIPS is
lower than the after-tax annual yield on a fixed-principal Treasury security of
the same maturity. TIPS are expected to show less market risk/price volatility
as interest rates rise and fall than a fixed-principal Treasury security of the
same maturity. Even though TIPS should experience less market volatility than
regular fixed-principal instruments, they should not be viewed as a surrogate
for a money market instrument or other cash equivalents.

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.

B-9
<PAGE> 206

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

"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.

B-10
<PAGE> 207

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)
are highly sensitive to changes in prepayment and interest rates.

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,

B-11
<PAGE> 208

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.

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.

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

B-12
<PAGE> 209

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 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.

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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 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

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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.

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.

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

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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.

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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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.

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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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.

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. For example,
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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(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.

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.

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.

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

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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 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.

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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 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.

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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 higher 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.

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

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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"). Among other
things, 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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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.

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.

B-24
<PAGE> 221

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 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-25
<PAGE> 222

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"). Certain OTC options may be
illiquid and are subject to the Fund's limitation on illiquid securities.

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 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.

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

B-26
<PAGE> 223

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 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-27
<PAGE> 224

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.

B-28
<PAGE> 225

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.

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.

B-29
<PAGE> 226

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, 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-30
<PAGE> 227

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.

B-31
<PAGE> 228

required, but if it terminates prior to such time, assets equal to any remaining
obligation would need to be segregated.

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 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, Policies and Risks" in the Prospectus
nor short term credits in

B-32
<PAGE> 229

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, Policies and Risks"
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-33
<PAGE> 230

TRUSTEES AND OFFICERS

TRUSTEES

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of
1632 Morning Mountain Road the funds in the Fund Complex. Co-founder,
Raleigh, NC 27614 and prior to August 1996, Chairman, Chief
Date of Birth: 07/14/32 Executive Officer and President, MDT
Corporation (now known as Getinge/Castle,
Inc., a subsidiary of Getinge Industrier AB),
a company which develops, manufactures,
markets and services medical and scientific
equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological
Barrington Place, Building 4 company. Trustee/Director of each of the
18 E. Dundee Road, Suite 101 funds in the Fund Complex. Prior to January
Barrington, IL 60010 1999, Chairman and Chief Executive Officer of
Date of Birth: 09/16/38 The Allstate Corporation ("Allstate") and
Allstate Insurance Company. Prior to January
1995, President and Chief Executive Officer
of Allstate. Prior to August 1994, Mr. Choate
held various management positions at
Allstate.
</TABLE>

B-34
<PAGE> 231

<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.
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.
Trustee of the TCW/DW Funds, Director of the
Morgan Stanley Dean Witter Funds and
Trustee/Director of other funds in the Fund
Complex. Prior to March 1999, Chairman, Chief
Executive Officer, President and 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, 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.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Trustee/Director of
233 South Wacker Drive each of the funds in the Fund Complex. Prior
Suite 7000 to 1997, Partner, Ray & Berndtson, Inc., an
Chicago, IL 60606 executive recruiting and management
Date of Birth: 06/03/48 consulting firm. Formerly, Executive Vice
President of ABN 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.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Trustee/Director of
Washington, D.C. 20016 each of the funds in the Fund Complex.
Date of Birth: 02/29/52 Formerly, advisor to the Dennis Trading Group
Inc. Prior to 1992, President and Chief
Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation,
a private foundation.
</TABLE>

B-35
<PAGE> 232

<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President and owner, Nelson Investment
423 Country Club Drive Planning Services, Inc., a financial planning
Winter Park, FL 32789 company and registered investment adviser.
Date of Birth: 02/13/36 President and owner, Nelson Ivest Brokerage
Services Inc., a member of the National
Association of Securities Dealers, Inc. and
Securities Investors Protection Corp.
Trustee/Director of each of the funds in the
Fund Complex.
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. Trustee/ Director of certain
open-end investment companies in the Fund
Complex and Trustee/Managing General Partner
of other funds advised by the Advisers or Van
Kampen Management Inc. Immediate past
Chairman of the Investment Company Institute.
Prior to January 1999, Chairman and Director
of Van Kampen Investments, the Advisers, the
Distributor, and Investor Services and
Director or officer of certain other
subsidiaries of Van Kampen Investments. Prior
to July 1998, Director and Chairman of VK/AC
Holding, Inc. Prior to November 1996,
President, Chief Executive Officer and
Director of VK/AC Holding, 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. Trustee/ Director
of each of the funds in the Fund Complex.
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.

B-36
<PAGE> 233

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

B-37
<PAGE> 234

OFFICERS

B-38
<PAGE> 235

B-39
<PAGE> 236

B-40
<PAGE> 237

B-41
<PAGE> 238

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 $ 3,048 $35,691 $60,000 $125,200
Jerry D. Choate(5) 0 0 60,000 0
Linda Hutton Heagy 3,048 3,861 60,000 112,800
R. Craig Kennedy 3,048 2,652 60,000 125,200
Jack E. Nelson 3,048 18,385 60,000 125,200
Phillip B. Rooney 2,448 6,002 60,000 125,200
Dr. Fernando Sisto 3,048 68,615 60,000 125,200
Wayne W. Whalen 3,048 12,658 60,000 125,200
Suzanne H. Woolsey(5) 0 0 60,000 0
Paul G. Yovovich(5) 1,619 0 60,000 25,300
</TABLE>

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

(1) 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 three operating 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, $3,048; Ms. Heagy,
$3,048; Mr. Kennedy, $1,525; Mr. Nelson, $3,048; Mr. Rooney, $2,448; Dr.
Sisto, $1,525; Mr. Whalen, $3,048; and Mr. Yovovich, $804. 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 operating series of the Trust as of the Trust's fiscal period ended
March 31, 1999 is as follows: Mr. Branagan, $21,964; Mr. Gaughan, $6,321;
Ms. Heagy, $27,695; Mr. Kennedy, $48,375; Mr. Miller, $30,195; Mr. Nelson,
$64,862; Mr. Rees, $8,688; Mr. Robinson, $49,131; Mr. Rooney, $11,775; Dr.
Sisto, $8,166; Mr. Whalen, $54,350; and Mr. Yovovich, $838. The details of
cumulative deferred compensation (including

B-42
<PAGE> 239

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

As of July 8, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-43
<PAGE> 240

TABLE A

1999 AGGREGATE COMPENSATION FROM
THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......... 3/31 $1,253 $0 $1,253 $1,253 $1,253 $1,053 $1,253 $1,253 $0 $ 694
Managed Short Term
Income Fund........... 3/31 ** ** ** ** ** ** ** ** ** **
Short-Term Global Income
Fund.................. 3/31 866 0 866 866 866 666 866 866 0 442
Strategic Income Fund... 3/31 929 0 929 929 929 729 929 929 0 483
------ -- ------ ------ ------ ------ ------ ------ -- ------
Trust Total........... $3,048 $0 $3,048 $3,048 $3,048 $2,448 $3,048 $3,048 $0 $1,619
</TABLE>

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

* Each 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. The Managed Short-Term
Income Fund has not commenced investment operations as of March 31, 1999.

** Such trustees received an organizational meeting fee of $200/trustee paid by
the Adviser in connection with the Fund's organization.

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM
THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......... 3/31 1,253 0 1,253 627 1,253 1,053 627 1,253 0 344
Managed Short-Term
Income Fund........... 3/31 ** ** ** ** ** ** ** ** ** **
Short-Term Global Income
Fund.................. 3/31 866 0 866 433 866 666 433 866 0 220
Strategic Income Fund... 3/31 929 0 929 465 929 729 465 929 0 240
------ -- ------ ------ ------ ------ ------ ------ -- ------
Trust Total........... $3,048 $0 $3,048 $1,525 $3,048 $2,448 $1,525 $3,048 $0 $ 804
</TABLE>

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

* Each 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. The Managed Short-Term
Income Fund has not commenced investment operations as of March 31, 1999.

** Such trustees received an organizational meeting fee of $200/trustee paid by
the Adviser in connection with the Fund's organization.

B-44
<PAGE> 241

TABLE C

1999 CUMULATIVE COMPENSATION DEFERRED
(PLUS INTEREST) FROM THE TRUST AND EACH SERIES

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

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

INVESTMENT ADVISORY AGREEMENT

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

B-45
<PAGE> 242

computed based upon an annual rate of 0.55% applied to the average daily net
assets of the Fund.

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, the Adviser received approximately $242,700, $434,800
and $605,700, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Advisory Corp. received approximately $11,300, $13,400
and $7,300, respectively, in accounting services fees from the Fund.

B-46
<PAGE> 243

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 approximately $6,300,
and $9,600 and $15,300, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal period ended March 31, 1999..................... $ 3,137 $241
Fiscal year ended June 30, 1998........................ $ 2,983 $239
Fiscal year ended June 30, 1997........................ $16,240 $694
</TABLE>

B-47
<PAGE> 244

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.

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<PAGE> 245

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 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."

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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 $7,979,579 and $309
of unreimbursed distribution-related expenses with respect to Class B Shares and
Class C Shares, respectively, representing 265.99% and 0.01% 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.

For the fiscal period ended March 31, 1999, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $91,982 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 expenses paid under the Plans
for Class B Shares were $72,858 or 1.00% of the Class B Shares' average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $48,629 for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class B Shares of the Fund and
$24,229 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 $2,413 or 1.00% of the Class C Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the

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following payments: $497 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class C Shares of the Fund and $1,916 for
fees paid to financial intermediaries for servicing Class C shareholders and
administering the Class C Share Plans.

The Distributor has entered into agreements with the following firms: (i)
Merrill Lynch, Pierce, Fenner & Smith Inc. and (ii) Norwest Bank Minnesota, N.A.
Shares of the Fund shall be offered pursuant to such firm's retirement plan
alliance program(s). Trustees and other fiduciaries of retirement plans seeking
to invest in multiple fund families through broker-dealer retirement plan
alliance programs should contact the firms mentioned above for further
information concerning such program(s) 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
approximately $73,700, $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.

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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.

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.

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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....................... $ 0 $0 $0
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........ 0% 0%
Value of brokerage transactions with affiliate to total
transactions........................................ 0% 0%
</TABLE>

During the fiscal period ended March 31, 1999, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.

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.

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SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE("ACH") DEPOSITS

DIVIDEND DIVERSIFICATION

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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

EXCHANGE PRIVILEGE

This policy change does not apply to money market funds, systematic
exchange plans, or employer-sponsored retirement plans.

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REINSTATEMENT PRIVILEGE

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.

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<PAGE> 253

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES
CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR 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 402(g)(2), the financial hardship of the employee pursuant
to Treasury Regulation Section 401(k)-1(d)(2), or from the death or disability
of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition,
the charge will be waived on any minimum distribution required to be distributed
in accordance with Code Section 401(a)(9).

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.

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<PAGE> 254

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

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.

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.

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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.

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.

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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 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 years, unless the Internal Revenue Service (the "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

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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 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.

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.

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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.

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

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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.

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.

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.

BACKUP WITHHOLDING

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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.

GENERAL

FUND PERFORMANCE

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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.

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.

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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 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.

B-66
<PAGE> 263

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 -1.91%, (ii) the five-year period ended March 31, 1999 was
2.91% and (iii) the approximately eight-year, six-month period since September
28, 1990, the commencement of distribution for Class A Shares of the Fund,
through March 31, 1999 was 3.78%. The Fund's cumulative non-standardized total
return, including payment of the maximum sales charge, with respect to the Class
A Shares from its inception to March 31, 1999 was 37.13%. 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
41.80%.

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 -2.30%, (ii) the five-year period ended March
31, 1999 was 2.80% 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 3.19%. 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 27.32%.
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 27.32%.

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 -0.39%, (ii) the five-year period ended March
31, 1999 was 2.78% 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 1.76%. 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 10.35%. 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 10.35%.

B-67
<PAGE> 264

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).

B-68
<PAGE> 265

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen Short-Term Global Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Short-Term Global Income Fund (the "Fund"), including the portfolio of
investments, as of March 31, 1999, and the related statement of operations for
the nine-month period ended March 31, 1999 and the year ended June 30, 1998, the
statement of changes in net assets for the nine-month period ended March 31,
1999 and for each of the years in the two year period ended June 30, 1998, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Short-Term Global Income Fund as of March 31, 1999, the results of its
operations for the nine-month period ended March 31, 1999 and the year ended
June 30, 1998, the changes in its net assets for the nine-month period ended
March 31, 1999 and for each of the years in the two year period ended June 30,
1998, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.

KPMG LLP

Chicago, Illinois

May 6, 1999
F-1
<PAGE> 266

PORTFOLIO OF INVESTMENTS

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS 47.0%
CONSUMER NON-DURABLES 4.6%
1,500 Gillette -- US$.......................... 6.000% 11/14/00 $ 1,511,250
1,000 Glaxo Welcome -- US$..................... 6.750 05/31/00 1,003,500
-----------
2,514,750
-----------
ELECTRONICS 1.7%
1,000 CIA Transporte Energia, 144A -- US$
(a)...................................... 8.625 04/01/03 937,500
-----------
ENERGY 8.4%
3,000 Petro Mexicanos, 144A -- US$ (a)......... 9.857 07/15/05 2,790,000
1,850 Petroliam Nasional Berhad, 144A -- US$
(a) (b).................................. 6.875 07/01/03 1,754,170
-----------
4,544,170
-----------
FINANCE 27.6%
1,000 Bank of Ireland -- US$................... 6.625 09/29/29 950,000
2,500 Export-Import Bank Korea -- DEM.......... 4.063 10/06/00 1,337,167
1,500 GE Capital Corp. -- US$.................. 5.500 01/16/01 1,497,600
1,000 GMAC -- US$.............................. 5.330 10/20/00 996,820
1,200 GMAC -- GBP.............................. 5.330 09/25/02 1,927,712
1,500 Interamer Development Bank -- US$........ 6.375 08/01/00 1,513,950
1,000 Korea Development Bank -- US$............ 7.900 02/01/02 1,002,400
1,600 Korea Development Bank -- DEM............ 5.625 10/25/99 882,323
1,000 NBG Finance PLC -- US$................... * 06/24/07 970,000
2,500 Nordic Investment Bank -- NZ$............ 6.750 09/16/99 1,346,726
500 SB Treasury Co. LLC, 144A -- US$ (a)
(b)...................................... 9.400 12/29/49 490,890
2,000 Union Bank of Norway, 144A -- US$ (a).... 9.100 10/25/00 2,065,000
-----------
14,980,588
-----------
UTILITIES 4.7%
3,000 Empresa Electrica Del Notre, 144A -- US$
(a)...................................... 7.750 03/15/06 1,560,000
1,000 Telecom Brazil -- US$.................... 11.250 12/09/99 970,000
-----------
2,530,000
-----------
Total Corporate Bonds........................................ 25,507,008
-----------
</TABLE>

See Notes to Financial Statements

F-2
<PAGE> 267
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREIGN GOVERNMENT AND AGENCY SECURITIES 17.7%
COLOMBIA 5.6%
2,500 Republic of Colombia -- Euro............. 4.900% 11/21/01 $ 1,212,780
1,000 Republic of Colombia -- US$.............. 8.660 10/07/16 885,000
1,000 Republic of Colombia -- US$.............. 12.243 08/13/05 912,500
-----------
3,010,280
-----------
GREECE 3.9%
300,000 Hellenic Republic -- GRD................. 9.200 03/21/02 1,047,756
320,000 Hellenic Republic -- GRD................. 9.800 03/21/00 1,068,471
-----------
2,116,227
-----------
HUNGARY 3.3%
425,000 Hungary Government -- HUF................ 16.000 11/24/00 1,842,274
-----------
PANAMA 2.7%
1,500 Republic of Panama, 144A -- US$ (a)
(b)...................................... 7.875 02/13/02 1,455,000
-----------
RUSSIA 0.3%
42 Russian Ian -- US$....................... 5.969 12/15/15 3,367
2,500 Russia Principal Loan -- Vnesh -- US$ (c)
(d)...................................... 5.969 12/15/20 181,250
-----------
184,617
-----------
SOUTH AFRICA 1.9%
1,000 Republic of South Africa -- US$.......... 9.625 12/15/99 1,018,800
-----------
Total Foreign Government and Agency Securities............... 9,627,198
-----------
US GOVERNMENT AND AGENCY OBLIGATIONS 2.7%
2,600 FNMA -- NZ$.............................. 7.250 06/20/02 1,451,157
-----------
MORTGAGE BACKED OBLIGATIONS 14.1%
7,650 RAST 1998-A4 -- US$ (b).................. 6.750 05/25/28 7,672,711
-----------
PREFERRED STOCK 0.7%
Avalon Bay Communities, Inc. -- US$ (6,000 preferred
shares)...................................................... 148,875
First Industrial Realty Trust -- US$ (10,000 preferred
shares)...................................................... 218,750
-----------
Total Preferred Stock........................................ 367,625
-----------
REPURCHASE AGREEMENT 5.7%
State Street Bank and Trust (collateralized by $1,935,000 of U.S.
Treasury Bonds, 13.25% coupon, due 05/15/14 dated 03/31/99, to be sold
on 04/01/99 at $3,082,415).............................................. 3,082,000
-----------
</TABLE>

See Notes to Financial Statements

F-3
<PAGE> 268
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT TERM NOTES 11.6%
2,043 Canadian Time Deposit.................... 4.750% 04/26/99 $ 2,043,420
4,264 Eurodollar Time Deposit.................. * 04/12/99 4,263,632
-----------
6,307,052
-----------
TOTAL INVESTMENTS 99.5%
(Cost $56,708,110).................................................... 54,014,751
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%............................. 265,670
-----------
NET ASSETS 100.0%...................................................... $54,280,421
------------
</TABLE>

* Zero coupon bond

(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.

(b) Assets segregated as collateral for open forward currency contracts.

(d) Security is accruing at less than the stated coupon.

PORTFOLIO COMPOSITION BY CREDIT QUALITY

The following table summarizes the portfolio composition at March 31, 1999,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.

<TABLE>
<S> <C>
Short Term Notes............... 11.7%
Repurchase Agreement........... 5.7%
AAA............................ 28.5%
AA............................. 4.7%
A.............................. 10.9%
BBB............................ 20.2%
BB............................. 12.4%
NR............................. 5.9%
-----
100.0%
=====
</TABLE>

See Notes to Financial Statements

F-4
<PAGE> 269

STATEMENT OF ASSETS AND LIABILITIES

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $56,708,110)........................ $ 54,014,751
Cash........................................................ 871
Receivables:
Interest.................................................. 784,814
Investments Sold.......................................... 62,108
Forward Currency Contracts................................ 28,889
Fund Shares Sold.......................................... 900
------------
Total Assets.......................................... 54,892,333
------------
LIABILITIES:
Payables:
Income Distributions...................................... 148,581
Distributor and Affiliates................................ 92,397
Investment Advisory Fee................................... 25,511
Fund Shares Repurchased................................... 23,491
Accrued Expenses............................................ 178,674
Trustees' Deferred Compensation and Retirement Plans........ 143,258
------------
Total Liabilities..................................... 611,912
------------
NET ASSETS.................................................. $ 54,280,421
============
NET ASSETS CONSIST OF:
Capital..................................................... $123,851,003
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,974,455)
Net Unrealized Depreciation................................. (2,802,037)
Accumulated Net Realized Loss............................... (64,794,090)
------------
NET ASSETS.................................................. $ 54,280,421
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $50,986,605 and 7,142,474 shares of
beneficial interest issued and outstanding)............. $ 7.14
Maximum sales charge (3.25%* of offering price)......... .24
------------
Maximum offering price to public........................ $ 7.38
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $3,029,945 and 424,495 shares of
beneficial interest issued and outstanding)............. $ 7.14
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $263,871 and 36,957 shares of beneficial
interest issued and outstanding)........................ $ 7.14
============
</TABLE>

*On sales of $25,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

F-5
<PAGE> 270

STATEMENT OF OPERATIONS

For the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $2,676
and $13,886, respectively, for the nine months ended
3/31/99 and the year ended 6/30/98)................. $ 3,400,269 $ 5,294,057
Dividends............................................. 26,486 14,298
----------- -----------
Total Income...................................... 3,426,755 5,308,355
----------- -----------
EXPENSES:
Investment Advisory Fee............................... 242,697 434,761
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $93,706, $64,108 and $2,336,
respectively for the nine months ended 3/31/99 and
$102,020, $379,656 and $2,737, respectively, for the
year ended 6/30/98)................................. 160,150 484,413
Shareholder Services.................................. 117,791 196,607
Custody............................................... 50,511 51,999
Blue Sky Expense...................................... 39,037 53,912
Trustees' Fees and Expenses........................... 24,361 28,422
Legal................................................. 20,550 12,375
Other................................................. 81,905 145,646
----------- -----------
Total Expenses.................................... 737,002 1,408,135
Less Expenses Reimbursed.......................... -0- 14,546
----------- -----------
Net Expenses...................................... 737,002 1,393,589
----------- -----------
NET INVESTMENT INCOME................................. $ 2,689,753 $ 3,914,766
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments......................................... $ (137,078) $ 863,170
Options............................................. -0- 18,292
Futures............................................. (366,635) (119,252)
Forwards............................................ 82,459 3,165,132
Foreign Currency Transactions....................... (1,030,272) (4,194,518)
----------- -----------
Net Realized Loss..................................... (1,451,526) (267,176)
----------- -----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period............................. (2,416,979) (1,420,976)
----------- -----------
End of the Period:
Investments....................................... (2,693,359) (1,465,165)
Forwards.......................................... (87,945) (939,286)
Futures........................................... -0- (12,353)
Foreign Currency Translation...................... (20,733) (175)
----------- -----------
(2,802,037) (2,416,979)
----------- -----------
Net Unrealized Depreciation During the Period......... (385,058) (996,003)
----------- -----------
NET REALIZED AND UNREALIZED LOSS...................... $(1,836,584) $(1,263,179)
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $ 853,169 $ 2,651,587
=========== ===========
</TABLE>

See Notes to Financial Statements

F-6
<PAGE> 271

STATEMENT OF CHANGES IN NET ASSETS

For the Nine Months Ended March 31, 1999 and the
Years Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
March 31, 1999 June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net Investment Income..................... $ 2,689,753 $ 3,914,766 $ 5,420,224
Net Realized Gain/Loss.................... (1,451,526) (267,176) 1,725,990
Net Unrealized Depreciation During the
Period.................................. (385,058) (996,003) (1,136,411)
----------- ------------ ------------
Change in Net Assets from Operations...... 853,169 2,651,587 6,009,803
----------- ------------ ------------
Distributions from Net Investment
Income.................................. (2,678,361) (3,914,766) (5,420,224)
Distributions in Excess of Net Investment
Income.................................. -0- (331,088) (1,573,147)
----------- ------------ ------------
Distributions from and in Excess of Net
Investment Income*...................... (2,678,361) (4,245,854) (6,993,371)
Return of Capital Distribution*........... -0- (290,326) (91,680)
----------- ------------ ------------
Total Distributions....................... (2,678,361) (4,536,180) (7,085,051)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. (1,825,192) (1,884,593) (1,075,248)
----------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................. 14,681,976 19,032,931 3,720,807
Net Asset Value of Shares Issued Through
Dividend Reinvestment................... 1,300,796 2,772,850 4,048,955
Cost of Shares Repurchased................ (25,487,170) (46,043,368) (46,302,530)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................ (9,504,398) (24,237,587) (38,532,768)
----------- ------------ ------------
TOTAL DECREASE IN NET ASSETS.............. (11,329,590) (26,122,180) (39,608,016)
NET ASSETS:
Beginning of the Period................... 65,610,011 91,732,191 131,340,207
----------- ------------ ------------
End of the Period (Including accumulated
distributions in excess of net
investment income of $1,974,455,
$1,985,847 and $455,277,
respectively)........................... $54,280,421 $ 65,610,011 $ 91,732,191
=========== ============ ============
</TABLE>

<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class March 31, 1999 June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares........................... $(2,323,505) (2,310,645) $ (3,003,963)
Class B Shares........................... (342,314) (1,921,964) (3,977,304)
Class C Shares........................... (12,542) (13,245) (12,104)
----------- ------------ ------------
$(2,678,361) $ (4,245,854) $ (6,993,371)
=========== ============ ============
Return of Capital Distribution:
Class A Shares........................... $ -0- $ (179,548) $ (40,726)
Class B Shares........................... -0- (109,531) (50,795)
Class C Shares........................... -0- (1,247) (159)
----------- ------------ ------------
$ -0- $ (290,326) $ (91,680)
=========== ============ ============
</TABLE>

See Notes to Financial Statements

F-7
<PAGE> 272

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year Ended June 30,
Nine Months Ended --------------------------------------
Class A Shares March 31, 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $7.35 $7.55 $7.62 $7.56 $8.15 $9.11
----------------- ----- ----- ----- ----- ------
Net Investment Income........ .33 .39 .42 .49 .50 .59
Net Realized and Unrealized
Gain/Loss.................. (.21) (.13) .03 .16 (.45) (.89)
----------------- ----- ----- ----- ----- ------
Total from Investment
Operations................. .12 .26 .45 .65 .05 (.30)
----------------- ----- ----- ----- ----- ------
Less:
Distributions from and in
Excess of Net Investment
Income................... .33 .42 .51 -0- .37 .35
Return of Capital
Distribution............. -0- .04 .01 .59 .27 .31
----------------- ----- ----- ----- ----- ------
Total Distributions.......... .33 .46 .52 .59 .64 .66
----------------- ----- ----- ----- ----- ------
Net Asset Value, End of the
Period..................... $7.14 $7.35 $7.55 $7.62 $7.56 $8.15
================= ===== ===== ===== ===== ======
Total Return* (a)............ 1.76%** 3.46% 6.09% 8.81% .69% (3.61%)
Net Assets at End of the
Period (In millions)....... $51.0 $45.7 $39.5 $50.1 $72.5 $147.7
Ratio of Expenses to Average
Net Assets* (b)............ 1.56% 1.39% 1.33% 1.31% 1.14% 1.13%
Ratio of Net Investment
Income to Average Net
Assets*.................... 6.21% 5.40% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover........... 53%** 175% 378% 225% 204% 259%
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets (b)............. N/A 1.41% 1.36% 1.34% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... N/A 5.38% 5.34% 6.51% 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.

(b) 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 Notes to Financial Statements

F-8
<PAGE> 273
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Year Ended June 30,
Nine Months Ended ------------------------------------------
Class B Shares March 31, 1999(a) 1998(a) 1997(a) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $7.35 $7.55 $7.62 $7.56 $8.15 $9.10
----- ----- ----- ----- ----- ------
Net Investment Income........ .36 .36 .35 .39 .41 .54
Net Realized and Unrealized
Gain/Loss.................. (.28) (.16) .04 .20 (.42) (.90)
----- ----- ----- ----- ----- ------
Total from Investment
Operations................. .08 .20 .39 .59 (.01) (.36)
----- ----- ----- ----- ----- ------
Less:
Distributions from and in
Excess of Net Investment
Income................... .29 .37 .45 -0- .34 .32
Return of Capital
Distribution............. -0- .03 .01 .53 .24 .27
----- ----- ----- ----- ----- ------
Total Distributions.......... .29 .40 .46 .53 .58 .59
----- ----- ----- ----- ----- ------
Net Asset Value, End of the
Period..................... $7.14 $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== ===== ======
Total Return* (b)............ 1.15%** 2.67% 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the
Period (In millions)....... $ 3.0 $19.6 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average
Net Assets* (c)............ 2.31% 2.16% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment
Income to Average Net
Assets*.................... 5.46% 4.48% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover........... 53%** 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by Van Kampen, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets (c)............. N/A 2.18% 2.12% 2.09% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... N/A 4.46% 4.59% 5.76% 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 Notes to Financial Statements

F-9
<PAGE> 274
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
Nine Months Ended --------------------------------- Distribution) to
Class C Shares March 31, 1999(a) 1998(a) 1997(a) 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $ 7.35 $7.55 $7.62 $7.56 $8.16 $ 9.24
------ ----- ----- ----- ----- -------
Net Investment Income... .29 .34 .35 .45 .50 .49
Net Realized and
Unrealized
Gain/Loss............. (.21) (.14) .04 .14 (.52) (1.05)
------ ----- ----- ----- ----- -------
Total from Investment
Operations............ .08 .20 .39 .59 (.02) (.56)
------ ----- ----- ----- ----- -------
Less:
Distributions from and
in Excess of Net
Investment Income... .29 .37 .45 -0- .34 .27
Return of Capital
Distribution........ -0- .03 .01 .53 .24 .25
------ ----- ----- ----- ----- -------
Total Distributions..... .29 .40 .46 .53 .58 .52
------ ----- ----- ----- ----- -------
Net Asset Value, End of
the Period............ $ 7.14 $7.35 $7.55 $7.62 $7.56 $ 8.16
====== ===== ===== ===== ===== =======
Total Return* (b)....... 1.15%** 2.67% 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the
Period (In
millions)............. $ .3 $ .3 $ .2 $ .2 $ .2 $ .2
Ratio of Expenses to
Average Net Assets*
(c)................... 2.33% 2.16% 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment
Income to Average Net
Assets*............... 5.46% 4.67% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover...... 53%** 175% 378% 225% 204% 259%

* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to
Average Net Assets
(c)................... N/A 2.17% 2.12% 2.09% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................ N/A 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 Notes to Financial Statements

F-10
<PAGE> 275

NOTES TO FINANCIAL STATEMENTS

March 31, 1999
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Short-Term Global Income Fund (the "Fund") is organized as a series
of Van Kampen Trust (the "Trust"), a Delaware business trust, and is registered
as a non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek a
high level of current income, consistent with prudent investment risk through
investment in a global portfolio of investment grade debt securities denominated
in various currencies and multi-national currency units and having an average
duration of three years or less. The Fund commenced investment operations on
September 28, 1990. The distribution of the Fund's Class B and Class C shares
commenced on July 22, 1991, and August 13, 1993, respectively. In July, 1998,
the Fund's Board of Trustees approved a change in the Fund's fiscal year end
from June 30 to March 31. As a result, this financial report reflects the
nine-month period commencing on July 1, 1998, and ending on March 31, 1999.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. SECURITY VALUATION--Investments are stated at value using the last available
bid price, or if not available, yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.

F-11
<PAGE> 276
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such security only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.

C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.

D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.

E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required. Although the
Fund's fiscal year end was recently changed from June 30 to March 31, the Fund's
tax year end remains June 30.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $63,342,563 which will expire between June 30, 2001 and June
30, 2004. Net realized gains or losses may

F-12
<PAGE> 277
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

differ for financial and tax reporting purposes primarily as a result of the
difference in the Fund's tax year end, post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on open forward
transactions at June 30, 1998.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $56,708,110; the aggregate gross unrealized
appreciation is $174,424 and the aggregate gross unrealized depreciation is
$2,867,783 resulting in net unrealized depreciation of $2,693,359.

F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Net realized gains, if any, are distributed annually.
For the year ended June 30, 1998, permanent book and tax differences
relating to net realized currency losses totaling $1,199,482 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.
For tax purposes, the determination of a return of capital distribution is
made at the Fund's taxable year end (June 30). Therefore, while it is likely
that a portion of the Fund's distribution will ultimately be characterized as a
return of capital for tax purposes, no such designation has been made for the
nine months ended March 31, 1999.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly of .55% of the Fund's average net assets.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $12,900 and $2,800, respectively,
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $17,600 and $23,000, respectively,
representing Van Kampen's cost of providing accounting and legal services to the
Fund.

F-13
<PAGE> 278
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the nine months
ended March 31, 1999 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $73,700 and $133,400, respectively. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.

F-14
<PAGE> 279
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At March 31, 1999, capital aggregated $75,377,296, $48,190,817 and $282,890,
for Classes A, B and C, respectively. For the nine months ended March 31, 1999,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 2,006,866 $ 14,345,350
Class B..................................... 38,305 277,659
Class C..................................... 8,367 58,967
---------- ------------
Total Sales................................... 2,053,538 $ 14,681,976
========== ============
Dividend Reinvestment:
Class A..................................... 155,386 $ 1,111,883
Class B..................................... 24,804 177,510
Class C..................................... 1,596 11,403
---------- ------------
Total Dividend Reinvestment................... 181,786 $ 1,300,796
========== ============
Repurchases:
Class A..................................... (1,242,343) $ (8,908,308)
Class B..................................... (2,299,947) (16,448,982)
Class C..................................... (18,281) (129,880)
---------- ------------
Total Repurchases............................. (3,560,571) $(25,487,170)
========== ============
</TABLE>

F-15
<PAGE> 280
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At June 30, 1998, capital aggregated $68,828,371, $64,184,630 and $342,400,
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 2,451,703 $ 18,354,657
Class B..................................... 64,808 487,442
Class C..................................... 25,354 190,832
---------- ------------
Total Sales................................... 2,541,865 $ 19,032,931
========== ============
Dividend Reinvestment:
Class A..................................... 227,701 $ 1,709,854
Class B..................................... 139,292 1,048,650
Class C..................................... 1,914 14,346
---------- ------------
Total Dividend Reinvestment................... 368,907 $ 2,772,850
========== ============
Repurchases:
Class A..................................... (1,683,807) $(12,642,954)
Class B..................................... (4,446,060) (33,357,245)
Class C..................................... (5,747) (43,169)
---------- ------------
Total Repurchases............................. (6,135,614) $(46,043,368)
========== ============
</TABLE>

F-16
<PAGE> 281
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $61,586,372, $96,115,314 and $181,638,
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 258,752 $ 1,966,958
Class B..................................... 212,311 1,604,749
Class C..................................... 19,713 149,100
---------- ------------
Total Sales................................... 490,776 $ 3,720,807
========== ============
Dividend Reinvestment:
Class A..................................... 261,651 $ 1,982,096
Class B..................................... 271,233 2,054,943
Class C..................................... 1,572 11,916
---------- ------------
Total Dividend Reinvestment................... 534,456 $ 4,048,955
========== ============
Repurchases:
Class A..................................... (1,868,594) $(14,169,926)
Class B..................................... (4,219,580) (31,987,407)
Class C..................................... (19,067) (145,197)
---------- ------------
Total Repurchases............................. (6,107,241) $(46,302,530)
========== ============
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
Class C shares purchased before January 1, 1997 will automatically convert to
Class A shares after the tenth year following purchase. The CDSC will be imposed
on most redemptions made within three years of the

F-17
<PAGE> 282
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 3.00% 1.00%
Second....................................... 2.00% None
Third........................................ 1.00% None
Fourth and Thereafter........................ None None
</TABLE>

For the nine months ended March 31, 1999 and the year ended June 30, 1998,
Van Kampen, as Distributor for the Fund, received commissions on sales of the
Fund's Class A shares of approximately $200 and $200, respectively, and CDSC on
redeemed shares of approximately $1,900 and $10,200, respectively. Sales charges
do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS
For the nine months ended March 31, 1999, the cost of purchases and proceeds
from sales of investments, excluding short-term investments were $27,537,985 and
$36,216,139, respectively.
For the year ended June 30, 1998, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $116,378,688 and
$135,900,050, respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.

F-18
<PAGE> 283
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Summarized below are the specific types of derivative financial instruments
used by the Fund.

A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period.
There were no transactions in options for the nine months ended March 31, 1999.
Transactions in options for the year ended June 30, 1998, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................... 1 $ (27,698)
Options Written and Purchased (Net)............. 12 444,910
Options Terminated in Closing Transactions
(Net)......................................... (12) (444,910)
Options Expired (Net)........................... (1) 27,698
--- ---------
Outstanding at June 30, 1998.................... -0- $ -0-
=== =========
</TABLE>

B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Notes and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.

F-19
<PAGE> 284
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Transactions in futures contracts for the nine months ended March 31, 1999
and the year ended June 30, 1998, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997............................... -0-
Futures Opened............................................. 371
Futures Closed............................................. (356)
----
Outstanding at June 30, 1998............................... 15
Futures Opened............................................. 257
Futures Closed............................................. (272)
----
Outstanding at March 31, 1999.............................. -0-
====
</TABLE>

<TABLE>
<CAPTION>
FORWARD CURRENT UNREALIZED
CURRENCY CONTRACTS VALUE DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
Euro Currency,
6,906,480 expiring 06/01/99..... $ 7,493,579 $(70,840)
Greek Drachma,
593,600,000 expiring 05/17/99... 1,956,350 (9,802)
New Zealand Dollar,
1,901,502 expiring 05/06/99..... 1,013,786 -0-
Pound Sterling,
1,124,805 expiring
04/06/99-05/06/99............... 1,815,012 (7,303)
----------- --------
$12,278,727 $(87,945)
=========== ========
</TABLE>

F-20
<PAGE> 285
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

1999, the Fund has net realized gains on closed but unsettled forward currency
contracts of $116,834 scheduled to settle between April 1, 1999 and October 27,
1999. This amount is due from two counterparties.

6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended March 31, 1999 and the year ended June 30, 1998, are
payments retained by Van Kampen of approximately $71,300 and $320,100,
respectively.

F-21
<PAGE> 286

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-24
Investment Restrictions..................................... B-32
Trustees and Officers....................................... B-35
Investment Advisory Agreement............................... B-46
Other Agreements............................................ B-47
Distribution and Service.................................... B-48
Transfer Agent.............................................. B-52
Portfolio Transactions and Brokerage Allocation............. B-52
Shareholder Services........................................ B-54
Redemption of Shares........................................ B-57
Contingent Deferred Sales Charge-Class A.................... B-57
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-57
Taxation.................................................... B-59
Fund Performance............................................ B-65
Other Information........................................... B-69
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-18
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JULY 29, 1999.

<PAGE> 287

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.

B-2
<PAGE> 288

B-3
<PAGE> 289

<TABLE>
<CAPTION>
Amount of
Ownership at Class Percentage
Name and Address of Holder July 8, 1999 of Shares Ownership
-------------------------- -------------- --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company.................... 244,424.13 A 6.77%
2800 Post Oak Blvd. 322,617.30 B 6.03%
Houston, TX 77056 18,058.27 C 5.17%
Merrill Lynch Pierce Fenner & Smith Inc..... 575,918.36 B 10.77%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</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
for investment purposes and 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
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> 290

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

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.

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.

B-5
<PAGE> 291

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 a 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.

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 money 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 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

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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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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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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

U.S. GOVERNMENT SECURITIES

TREASURY INFLATION-PROTECTED SECURITIES

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open auction process and then remains constant over the life of the security.
The principal value rises or falls semi-annually based upon changes in the
Consumer Price Index. If inflation occurs, the principal and interest payments
on TIPS are adjusted to protect investors from inflationary loss. If deflation
occurs, the principal and interest payments will be adjusted downward, although
the principal will not fall below its face amount at maturity. Holders of TIPS
are taxed on the interest income received, as well as on the increase in
principal that is due to the inflation adjustment. As a result, the after-tax
annual yield on TIPS is lower than the after-tax annual yield on a
fixed-principal Treasury security of the same maturity. TIPS are expected to
show less market risk/price volatility as interest rates rise and fall than a
fixed-principal Treasury security of the same maturity. Even though TIPS should
experience less market volatility than regular fixed-principal instruments, they
should not be viewed as a surrogate for a money market instrument or other cash
equivalents.

EUROPEAN ECONOMIES

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).

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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

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

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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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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.

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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.

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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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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.

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.

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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.

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.

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ASSET-BACKED 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.

DISCOUNT, ZERO COUPON SECURITIES AND PAYMENT-IN-KIND SECURITIES

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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.

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 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

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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.

PREFERRED STOCK

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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.

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

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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.

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). 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

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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"). Among other
things, 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, to protect
against changes in foreign currency exchange rates, or to establish a position
in the derivatives markets as a temporary substitute for purchasing or selling
particular securities.

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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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obligations of the parties to such options. The discussion below uses the OCC as
a paradigm, but is also applicable to other financial intermediaries.

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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"). Certain OTC options may be illiquid and subject to the
Funds limitation on illiquid securities.

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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.

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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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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.

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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.

INVESTMENT RESTRICTIONS

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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.

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.

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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.

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TRUSTEES AND OFFICERS

TRUSTEES

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B-36
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B-37
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- ------------------------------------

B-38
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OFFICERS

B-39
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B-40
<PAGE> 326

B-41
<PAGE> 327

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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 $ 3,048 $35,691 $60,000 $125,200
Jerry D. Choate(5) 0 0 60,000 0
Linda Hutton Heagy 3,048 3,861 60,000 112,800
R. Craig Kennedy 3,048 2,652 60,000 125,200
Jack E. Nelson 3,048 18,385 60,000 125,200
Phillip B. Rooney 2,448 6,002 60,000 125,200
Dr. Fernando Sisto 3,048 68,615 60,000 125,200
Wayne W. Whalen 3,048 12,658 60,000 125,200
Suzanne H. Woolsey(5) 0 0 60,000 0
Paul G. Yovovich(5) 1,619 0 60,000 25,300
</TABLE>

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

(1) 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 three operating 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, $3,048; Ms. Heagy,
$3,048; Mr. Kennedy, $1,525; Mr. Nelson, $3,048; Mr. Rooney, $2,448; Dr.
Sisto, $1,525; Mr. Whalen, $3,048; and Mr. Yovovich, $804. 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 operating series of the Trust as of the Trust's fiscal period ended
March 31, 1999 is as follows: Mr. Branagan, $21,964; Mr. Gaughan, $6,321;
Ms. Heagy, $27,695; Mr. Kennedy, $48,375; Mr. Miller, $30,195; Mr. Nelson,
$64,862; Mr. Rees, $8,688; Mr. Robinson, $49,131; Mr. Rooney, $11,775; Dr.
Sisto, $8,166; Mr. Whalen, $54,350; and Mr. Yovovich, $838. The details of
cumulative deferred compensation (including

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

As of July 8, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

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TABLE A

1999 AGGREGATE COMPENSATION FROM
THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......... 3/31 $1,253 $0 $1,253 $1,253 $1,253 $1,053 $1,253 $1,253 $0 $ 694
Managed Short-Term
Income Fund........... 3/31 ** ** ** ** ** ** ** ** ** **
Short-Term Global Income
Fund.................. 3/31 866 0 866 866 866 666 866 866 0 442
Strategic Income Fund... 3/31 929 0 929 929 929 729 929 929 0 483
------ -- ------ ------ ------ ------ ------ ------ -- ------
Trust Total........... $3,048 $0 $3,048 $3,048 $3,048 $2,448 $3,048 $3,048 $0 $1,619
</TABLE>

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

* Each 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. The Managed Short-Term
Income Fund has not commenced investment operations as of March 31, 1999.

** Such trustees received an organizational meeting fee of $200/trustee paid by
the Adviser in connection with the Fund's organization.

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM
THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
--------- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......... 3/31 1,253 0 1,253 627 1,253 1,053 627 1,253 0 344
Managed Short-Term
Income Fund........... 3/31 ** ** ** ** ** ** ** ** ** **
Short-Term Global Income
Fund.................. 3/31 866 0 866 433 866 666 433 866 0 220
Strategic Income Fund... 3/31 929 0 929 465 929 729 465 929 0 240
------ -- ------ ------ ------ ------ ------ ------ -- ------
Trust Total........... $3,048 $0 $3,048 $1,525 $3,048 $2,448 $1,525 $3,048 $0 $ 804
</TABLE>

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

* Each 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. The Managed Short-Term
Income Fund has not commenced investment operations as of March 31, 1999.

** Such trustees received an organizational meeting fee of $200/trustee paid by
the Adviser in connection with the Fund's organization.

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TABLE C

1999 CUMULATIVE COMPENSATION DEFERRED
(PLUS INTEREST) FROM THE TRUST AND EACH SERIES

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

* Each 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. The Managed Short-Term
Income Fund has not commenced investment operations as of March 31, 1999.

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
--------------------------------------------------------------------------------------------
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund..................... 1995 1999 1995 1993 1986 1997 1995 1986 1999 1998
Managed Short-Term Income Fund...... 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999
Short-Term Global Income Fund....... 1995 1999 1995 1993 1990 1997 1995 1990 1999 1998
Strategic Income Fund............... 1995 1999 1995 1993 1993 1997 1995 1993 1999 1998
</TABLE>

INVESTMENT ADVISORY AGREEMENT

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 managed assets of the

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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 approximately $893,500, $1,262,800
and $1,132,300, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

During the fiscal period ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997, Advisory Corp. received approximately $8,200, $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

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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 approximately $9,400,
$16,500 and $13,600, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal period ended March 31, 1999..................... $134,029 $15,130
Fiscal year ended June 30, 1998........................ $239,538 $27,505
Fiscal year ended June 30, 1997........................ $214,184 $26,483
</TABLE>

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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.

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<PAGE> 335

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares, sub-agreements between the Distributor and members
of the NASD who are acting as securities dealers and NASD members or eligible
non-members who are acting as brokers or agents and similar agreements between
the Fund and financial intermediaries who are acting as brokers (collectively,
"Selling Agreements") that may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or regulation.
Brokers, dealers and financial intermediaries that have entered into
sub-agreements with the Distributor and sell shares of the Fund are referred to
herein as "financial intermediaries."

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<PAGE> 336

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 $2,216,746.48 and
$9,786 of unreimbursed distribution-related expenses with respect to Class B
Shares and Class C Shares, respectively, representing 3.53% and 0.24% 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.

For the fiscal period ended March 31, 1999, the Fund's aggregate expenses
paid under the Plans for Class A Shares were $81,148 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 expenses paid under the Plans
for Class B Shares were $528,445 or 1.00% of the Class B Shares' average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $392,184 for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class B Shares of the Fund and
$136,261 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

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paid under the Plans for Class C Shares were $30,856 or 1.00% of the Class C
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $14,475 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C Shares of
the Fund and $16,381 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 the following firm: (i)
Merrill Lynch, Pierce, Fenner & Smith Inc. Shares of the Fund shall be offered
pursuant to such firm's retirement plan alliance program(s). Trustees and other
fiduciaries of retirement plans seeking to invest in multiple fund families
through broker-dealer retirement plan alliance programs should contact the firm
mentioned above for further information concerning such program(s) 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
approximately $98,400, $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

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 bonds on a exchange, which are effected through brokers who charge a
commission for their services.

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<PAGE> 338

reliability, integrity and financial condition and the firm's execution
capability, the size and breadth of the market for the security, the size of and
difficulty in executing the order, and the best net price. There are many
instances when, in the judgment of the Adviser, more than one firm can offer
comparable execution services. In selecting among such firms, consideration may
be given to those firms which supply research and other services in addition to
execution services. The Adviser is authorized to pay higher commissions to
brokerage firms that provide it with investment and research information than to
firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. No
specific value can be assigned to such research services which are furnished
without cost to the Adviser. Since statistical and other research information is
only supplementary to the research efforts of the Adviser to the Fund and still
must be analyzed and reviewed by its staff, the receipt of research information
is not expected to reduce its expenses materially. The investment advisory fee
is not reduced as a result of the Adviser's receipt of such research services.
Services provided may include (a) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Fund's shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Fund's shares.

B-53
<PAGE> 339

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.......................... $ 4,640 $ 0 $ 0
Fiscal year ended June 30, 1998............................. $19,191 $ 0 $ 0
Fiscal year ended June 30, 1997............................. $53,126 $ 0 $ 0
Fiscal period ended March 31, 1999 Percentages:
Commissions with affiliate to total commissions........... 0% 0%
Value of brokerage transactions with affiliate to total
transactions............................................ 0% 0%
</TABLE>

During the fiscal period ended March 31, 1999, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

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<PAGE> 340

SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE("ACH") DEPOSITS

DIVIDEND DIVERSIFICATION

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<PAGE> 341

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

EXCHANGE PRIVILEGE

This policy change does not apply to money market funds, systematic
exchange plans, or employer-sponsored retirement plans.

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<PAGE> 342

REINSTATEMENT PRIVILEGE

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.

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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<PAGE> 343

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

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

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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.

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

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

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<PAGE> 345

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.

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-60
<PAGE> 346

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.

DISTRIBUTIONS

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<PAGE> 347

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.

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

B-62
<PAGE> 348

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.

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

NON-U.S. SHAREHOLDERS

B-63
<PAGE> 349

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.

BACKUP WITHHOLDING

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

B-64
<PAGE> 350

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.

GENERAL

FUND PERFORMANCE

B-65
<PAGE> 351

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.

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-66
<PAGE> 352

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
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

B-67
<PAGE> 353

was -9.42%, (ii) the five-year period ended March 31, 1999 was 5.09% and (iii)
the approximately five-year, three-month period since December 31, 1993, the
commencement of distribution for Class A Shares of the Fund, through March 31,
1999 was 2.87%.

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 16.01%.

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 21.77%.

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 16.10%.

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 16.87%.

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 16.69%.

The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class C Shares from
its inception to March 31, 1999 was 16.69%.

B-68
<PAGE> 354

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).

B-69
<PAGE> 355

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen Strategic Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Strategic Income Fund (the "Fund"), including the portfolio of
investments, as of March 31, 1999, and the related statement of operations for
the nine-month period ended March 31, 1999 and the year ended June 30, 1998, the
statement of changes in net assets for the nine-month period ended March 31,
1999, and for each of the years in the two-year period ended June 30, 1998, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Strategic Income Fund as of March 31, 1999, the results of its operations
for the nine-month period ended March 31, 1999 and the year ended June 30, 1998,
the changes in its net assets for the nine-month period ended March 31, 1999 and
for each of the years in the two-year period ended June 30, 1998, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.

KPMG LLP

Chicago, Illinois

May 6, 1999

F-1
<PAGE> 356

PORTFOLIO OF INVESTMENTS

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES 5.0%
2,000 PDVSA Finance Ltd. 1999-F-144A -
Private Placement-US$ (a) (b).... 8.750% 02/15/04 $ 1,993,140
2,500 PECO Energy Transport Trust, Ser
A2-US$........................... 5.630 03/01/05 2,495,309
1,000 PECO Energy Transport Trust, Ser
A6-US$........................... 6.050 03/01/09 995,781
------------
5,484,230
------------
CORPORATE BONDS 56.5%
AUTOMOBILE 2.7%
250 Aetna Industries, Inc.-US$ (c)... 11.875 10/01/06 261,250
250 Cambridge Industries Inc., Ser
B-US$............................ 10.250 07/15/07 212,500
1,125 Federal-Mogul Corp.-US$.......... 7.750 07/01/06 1,127,813
100 Oxford Automotive Inc., 144A -
Private Placement-US$ (a) (c).... 10.125 06/15/07 103,500
855 Talon Automotive Group, Inc., Ser
B................................ 9.625 05/01/08 752,400
500 Venture Holdings Trust-US$....... 9.750 04/01/04 492,500
------------
2,949,963
------------
BANKING 5.0%
3,000 MBNA Capital I-US$ (c)........... 8.278 12/01/26 2,884,956
2,400 Sovereign Bancorp Inc.-US$ (c)... 8.000 03/15/03 2,499,876
------------
5,384,832
------------
BEVERAGE, FOOD & TOBACCO 6.4%
300 Fleming Companies Inc., Ser B-US$
(c).............................. 10.625 07/31/07 279,000
1,000 Fred Meyer Inc.-US$ (c).......... 7.450 03/01/08 1,056,318
250 Luigino's Inc., 144A - Private
Placement- US$ (a) (c)........... 10.000 02/01/06 250,938
650 Pantry, Inc.-US$ (c)............. 10.250 10/15/07 685,750
2,500 Pepsi-Gemex SA, Ser B-US$ (c).... 9.750 03/30/04 2,474,750
2,000 Shoppers Food Warehouse-US$
(c).............................. 9.750 06/15/04 2,160,000
------------
6,906,756
------------
</TABLE>

See Notes to Financial Statements

F-2
<PAGE> 357
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BROADCASTING, TELEVISION &
MUSIC 1.6%
500 British Sky Broadcasting-US$
(c).............................. 6.875% 02/23/09 $ 493,228
250 Capstar Broadcasting-US$ (c)
(d).............................. 0/12.750 02/01/09 212,500
200 Muzak LLC, 144A - Private
Placement- US$ (a)............... 9.875 03/15/09 203,500
1,000 TV Azteca, SA-US$................ 10.125 02/15/04 842,500
------------
1,751,728
------------
BUILDINGS AND REAL ESTATE 1.6%
750 Cemex International Cap LLC-US$
(c).............................. 9.660 11/29/49 697,500
1,000 Cemex International Cap LLC,
144A - Private Placement-US$ (a)
(c).............................. 9.660 12/29/49 930,000
125 Del Webb Corp.-US$............... 9.375 05/01/09 121,875
------------
1,749,375
------------
CHEMICALS, PLASTIC & RUBBER .7%
500 Coastal Corp.-US$................ 6.500 06/01/08 502,922
325 Pioneer Americas Acquisition, Ser
B- US$ (c)....................... 9.250 06/15/07 274,625
------------
777,547
------------
CONTAINERS, PACKAGING, PAPER &
GLASS 1.5%
1,000 Owens Corning-US$ (c)............ 7.500 08/01/18 973,168
200 Pacifica Papers Inc., 144A -
Private Placement-US$ (a)........ 10.000 03/15/09 206,500
250 Packaging Corp. of America, 144A
-Private Placement-US$ (a) (b)... 9.625 04/01/09 250,000
200 Repap New Brunswick-US$ (c)...... 9.000 06/01/04 195,000
------------
1,624,668
------------
DIVERSIFIED/CONGLOMERATE
SERVICE .2%
200 Russell-Stanley Holdings Inc.,
144A - Private Placement-US$ (a)
(c).............................. 10.875 02/15/09 199,750
------------
</TABLE>

See Notes to Financial Statements

F-3
<PAGE> 358
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCE 1.1%
500 Citigroup Inc.-US$............... 5.800% 03/15/04 $ 497,355
1,000 Dynex Capital Inc.-US$ (c)....... 7.875 07/15/02 700,000
------------
1,197,355
------------
HEALTHCARE .6%
625 Oxford Health Plans, 144A -
Private Placement-US$ (a) (c).... 11.000 05/15/05 640,625
------------
HOTEL & GAMING 1.3%
575 Booth Creek Ski Holdings, Ser
B-US$ (c)........................ 12.500 03/15/07 549,125
750 Majestic Star Casino, LLC-US$
(c).............................. 12.750 05/15/03 832,500
------------
1,381,625
------------
MACHINERY .2%
200 Terex Corp., Ser C, 144A -
Private Placement-US$ (a)........ 8.875 04/01/08 197,500
------------
MANUFACTURING .1%
100 Compass Aerospace Corp., 144A -
Private Placement-US$ (a) (c).... 10.125 04/15/05 96,000
------------
MINING .2%
250 Renco Steel Holdings, 144A -
Private Placement-US$ (a) (c).... 10.875 02/01/05 221,250
------------
OIL & GAS 4.3%
500 Frontier Oil Corp., Ser A-US$
(c).............................. 9.125 02/15/06 490,000
500 Giant Industries-US$ (c)......... 9.750 11/15/03 495,000
1,000 Hurricane Hydrocarbons, 144A -
Private Placement-US$ (a) (c).... 11.750 11/01/04 460,000
1,000 Lukinter Finance, B, 144A -
Private Placement-US$ (a) (c).... * 11/03/03 400,000
3,000 Petroleos Mexicanos, 144A -
Private Placement-US$ (a) (c).... 9.857 07/15/05 2,790,000
------------
4,635,000
------------
PRINTING, PUBLISHING &
BROADCASTING 1.1%
1,000 CSC Holdings, Inc.-US$ (c)....... 10.500 05/15/16 1,190,000
------------
</TABLE>

See Notes to Financial Statements

F-4
<PAGE> 359
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RETAIL 1.4%
250 Big 5 Corp., Ser B-US$........... 10.875% 11/15/07 $ 255,000
400 Community Distributors, Ser
B-US$............................ 10.250 10/15/04 370,000
400 Duane Reade Inc.-US$ (c)......... 9.250 02/15/08 418,000
500 Saks Inc.-US$.................... 7.375 02/15/19 487,659
------------
1,530,659
------------
TELECOMMUNICATIONS 18.3%
500 AT&T Corp.-US$................... 6.000 03/15/09 497,799
1,000 CIA International
Telecommunication-ARP (c)........ 10.375 08/01/04 755,533
200 Centennial Cellular,
144A - Private Placement-US$
(a).............................. 10.750 12/15/08 212,500
500 Century Communications-US$ (c)... 9.500 03/01/05 538,125
100 Charter Communications Holdings,
144A - Private Placement-US$
(a).............................. 8.625 04/01/09 102,500
200 Charter Communications Holdings,
144A - Private Placement-US$
(a).............................. 8.250 04/01/07 205,000
500 E. Spire Communications Inc.-US$
(c) (d).......................... 0/10.625 07/01/08 252,500
200 E. Spire Communications Inc.-US$
(d).............................. 0/13.000 11/01/05 145,000
250 E. Spire Communications Inc.-US$
(c).............................. 13.750 07/15/07 247,500
200 Fairchild Semiconductor,
144A - Private Placement-US$ (a)
(b).............................. 10.375 10/01/07 203,500
235 Globo Communicacoes
Participacoes, 144A - Private
Placement-US$ (a)................ 10.625 12/05/08 153,925
500 Globo Communicacoes
Participacoes- US$ (c)........... 10.625 12/05/08 327,500
500 Hermes Europe Railtel BV-US$
(c).............................. 11.500 08/15/07 550,000
1,000 Hermes Europe Railtel BV-EUR$.... 10.375 01/15/06 1,156,937
500 Intermedia Communications, Ser B-
US$ (c) (d)...................... 0/11.250 07/15/07 382,500
500 Intermedia Communications, Ser
B-US$ (c)........................ 8.600 06/01/08 503,750
1,000 Level 3 Communications, Inc.,
144A - Private Placement-US$ (a)
(c) (d).......................... 0/10.500 12/01/08 630,000
2,500 MCI Worldcom Inc.-US$ (c)........ 8.875 01/15/06 2,693,498
1,000 Metronet Communications Corp.-US$
(c) (d).......................... 0/9.950 06/15/08 777,500
</TABLE>

See Notes to Financial Statements

F-5
<PAGE> 360
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
250 Millicom International-US$ (c)
(d).............................. 0/13.500% 06/01/06 $ 187,500
500 Netia Holdings BV, Ser B-US$
(c).............................. 10.250 11/01/07 477,500
250 Netia Holdings BV, Ser B-US$ (c)
(d).............................. 0/11.250 11/01/07 172,500
750 Nextel Communications, Inc.-US$
(c).............................. 9.750 08/15/04 780,000
500 Nextel Communications, Inc.-US$
(c) (d).......................... 0/10.650 09/15/07 364,830
250 NTL Inc., Ser A-US$ (c) (d)...... 0/12.750 04/15/05 236,563
500 NTL Inc., 144A - Private
Placement- US$ (a) (c)........... 11.500 10/01/08 561,250
500 Orange PLC-EUR$.................. 7.625 08/01/08 581,172
375 Pinnacle Holdings, Inc.-US$ (c)
(d).............................. 0/10.000 03/15/08 227,813
500 Price Communication Cellular
Holdings- US$ (c) (f)............ 11.250 08/15/08 485,000
250 Primus Telecommunications Group,
144A - Private Placement-US$ (a)
(c).............................. 11.250 01/15/09 258,125
500 Satelites Mexicanos SA, Ser
B-US$............................ 10.125 11/01/04 412,500
750 SBA Communications Corp.-US$ (c)
(d).............................. 0/12.000 03/01/08 476,250
250 Splitrock Services, Inc., Ser
B-US$............................ 11.750 07/15/08 238,750
3,000 Tele-Communications Inc.-US$
(c).............................. 8.350 02/15/05 3,334,197
750 Triton PCS Inc.-US$ (d).......... 0/11.000 05/01/08 446,250
500 Viatel Inc.-US$ (d).............. 0/12.500 04/15/08 315,000
------------
19,890,767
------------
TEXTILES .3%
250 Scovill Fasteners Inc., Ser B-US$
(c).............................. 11.250 11/30/07 192,500
150 Supreme International Corp.,
144A - Private Placement-US$ (a)
(b).............................. 12.250 04/01/06 148,278
------------
340,778
------------
UTILITIES 7.9%
1,000 Central Termica Guemes, SA,
144A - Private Placement-US$ (a)
(c).............................. 12.000 11/26/01 330,000
1,000 Edelnor, 144A - Private
Placement- US$ (a) (c)........... 10.500 06/15/05 610,000
1,750 Edelnor, 144A - Private
Placement- US$ (a) (c)........... 7.750 03/15/06 910,000
</TABLE>

See Notes to Financial Statements

F-6
<PAGE> 361
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
2,000 Korea Electric Power-US$ (c)..... 7.000% 02/01/27 $ 1,869,400
375 Midamerican Energy Holdings-US$
(c).............................. 7.230 09/15/05 387,188
498 Midland Cogeneration Vent, Ser
C-91- US$ (c).................... 10.330 07/23/02 530,765
3,000 Niagara Mohawk Power, Ser B-US$
(c).............................. 7.000 10/01/00 3,041,250
1,000 South Carolina Electric & Gas
Co.-US$.......................... 6.125 03/01/09 1,000,790
------------
8,679,393
------------
Total Corporate Bonds 56.5%............................... 61,345,571
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 28.5%
ARGENTINA 2.3%
625 Republic of Argentina, Ser XW-US$
(c).............................. 11.000 12/04/05 593,750
2,000 Republic of Argentina-US$ (b).... 11.750 04/07/09 1,947,500
------------
2,541,250
------------
AUSTRALIA 1.3%
2,000 Australian Government-AU$ (c).... 6.750 11/15/06 1,376,321
------------
BRAZIL 2.1%
3,533 Federal Republic of Brazil-US$... 8.000 04/15/14 2,253,965
------------
BULGARIA .9%
1,500 Bulgaria Disc, Ser A-US$ (c)..... 5.875 07/28/24 1,012,500
------------
CANADA .8%
1,250 Canadian Government, Ser
VR22-CA$......................... 7.500 03/01/01 866,264
------------
COLUMBIA .6%
1,250 Republic of Columbia-DEM......... 4.479 11/21/01 606,390
------------
COSTA RICA .8%
1,000 Costa Rica - Prin, Ser A-US$
(e).............................. 6.250 05/21/10 862,500
------------
GREECE 1.0%
300,000 Hellenic Republic-GRD (c)........ 9.200 03/21/02 1,047,756
------------
HUNGARY 1.7%
433,350 Hungary Government-HUF........... 16.000 11/24/00 1,878,469
------------
ITALY .9%
775 Republic of Italy BTPS-EUR$...... 9.500 05/01/01 945,680
------------
</TABLE>

See Notes to Financial Statements

F-7
<PAGE> 362
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEXICO 2.8%
1,000 United Mexican States, Ser
XW-US$........................... 10.375% 02/17/09 $ 1,032,500
2,500 United Mexican States, Ser
W-B-US$ (e)...................... 6.250 12/31/19 1,959,375
------------
2,991,875
------------
MOROCCO .7%
952 Moroccan Loan Agreement-US$...... 6.063 01/01/09 775,595
------------
NEW ZEALAND 1.1%
2,000 New Zealand Government-NZ$ (c)... 8.000 11/15/06 1,217,319
------------
PANAMA 3.1%
1,650 Republic of Panama,
144A - Private Placement-US$ (a)
(c).............................. 7.875 02/13/02 1,600,500
2,000 Republic of Panama-US$........... 8.875 09/30/27 1,830,000
------------
3,430,500
------------
RUSSIA 1.9%
216 Russia-Ian-US$ (e)............... 5.969 12/15/15 17,243
17,800 Russia Principal Loan-Vnesh-US$
(f) (g).......................... 5.969 12/15/20 1,290,500
2,000 Russian Federation-US$........... 8.750 07/24/05 490,000
1,000 Russian Federation-US$........... 11.000 07/24/18 260,000
------------
2,057,743
------------
SOUTH KOREA 1.8%
2,500 Export-Import Bank Korea-DEM
(c).............................. 3.721 10/06/00 1,337,167
1,200 Korea Development Bank-DEM....... 5.625 10/25/99 661,742
------------
1,998,909
------------
UNITED KINGDOM 2.1%
1,000 U.K. Treasury-GBP................ 7.000 11/06/01 1,702,490
350 U.K. Treasury-GBP................ 6.750 11/26/04 626,385
------------
2,328,875
------------
URUGUAY .8%
1,000 Banco Central Del Uruguay, Ser
B-US$............................ 6.750 02/19/21 880,000
------------
</TABLE>

See Notes to Financial Statements

F-8
<PAGE> 363
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VENEZUELA 1.8%
1,000 Republic of Venezuela, Ser
W-A-US$ (c)...................... 6.750% 03/31/20 $ 696,250
2,000 Republic of Venezuela-US$........ 9.250 09/15/27 1,230,000
------------
1,926,250
------------
Total Foreign Government and Agency Securities 28.5%...... 30,998,161
------------
MORTGAGE BACKED SECURITIES (U.S.) 25.0%
1,548 DLJ Mortgage Acceptance Corp.
1996-E1 (c)...................... 7.410 09/28/25 1,502,154
2,608 FNMA Benchmark Note.............. 5.125 04/01/99 2,560,682
14,496 FNMA REMIC #97-20 IB (Interest
Only) (c)........................ 1.840 03/25/27 471,106
5,000 FNMA TBA 15 (b).................. 6.000 12/01/13 4,959,400
10,531 FNMA............................. 6.000 05/01/28-
02/01/29 10,234,912
2,376 FNMA (c)......................... 7.000 02/01/27-
08/01/28 2,408,948
3,378 GNMA (c)......................... 7.000 05/15/26-
07/15/28 3,430,199
23,489 SBA Strip (Principal Only) (c)... * 08/24/19 1,581,709
------------
Total Mortgage Backed Securities (U.S.)................... 27,149,110
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 12.9%
4,000 U.S. Treasury Bonds (c).......... 5.500 08/15/28 3,830,160
1,000 U.S. Treasury Notes (c).......... 4.500 01/31/01 991,540
4,000 U.S. Treasury Notes (c).......... 4.750 11/15/08 3,852,480
5,500 U.S. Treasury Notes (c).......... 4.250 11/15/03 5,292,980
------------
Total U.S. Government and Government Agency Obligations... 13,967,160
------------
</TABLE>

See Notes to Financial Statements

F-9
<PAGE> 364
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.$
Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 3.7%
Avalon Bay Communities, Ser G-Preferred
Shares-US$................................. 50,000 $ 1,240,625
Grupo Casa Autrey-ADR (Mexico)-US$......... 8,500 43,563
MEPC International Capital, LP-Preferred
Shares- US$ (c)............................ 100,000 2,631,250
Republic of Argentina-Warrants-US$......... 625 24,375
Splitrock Services Inc.,-Warrants, 144A -
Private Placement-US$ (a).................. 16,250 16,250
Thai Military Bank-THB..................... 15,000 7,189
United Mexican States-Warrants-US$......... 1,000 36,000
------------
Total Common and Preferred Stocks......................... 3,999,252
------------
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 10.0 million US$ notional amount, maturing
01/19/00, payment based upon the spread between the 6 year
French Franc swap interest rate versus the 6 year German
Mark swap interest rate................................... (1,334)
------------
TOTAL LONG-TERM INVESTMENTS 131.6%
(Cost $150,136,280)....................................... 142,942,150
------------
</TABLE>

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS 8.1%
4,285 Euro Time Deposit-EUR$........... 2.900% 04/05/99 $ 4,633,561
3,892 Euro Time Deposit-EUR$........... 2.900 04/12/99 4,208,452
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $8,905,313)......................................... 8,842,013
------------
TOTAL INVESTMENTS 139.7%
(Cost $159,041,593)....................................... 151,784,163
LIABILITIES IN EXCESS OF OTHER ASSETS (39.7%)............ (43,162,742)
------------
NET ASSETS 100.0%........................................ $108,621,421
============
</TABLE>

*Zero coupon bond

(b) Securities purchased on a when issued or delayed delivery basis.

(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open options, futures, forwards or swaps transactions or
borrowings of the Fund.

(d) Security is a "step-up" bond where the coupon increases, or steps up, at a
predetermined date.
See Notes to Financial Statements

F-10
<PAGE> 365
PORTFOLIO OF INVESTMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

(e) Item represents a "Brady Bond" which is a product of the "Brady Plan" under
which various Latin American, African and southeast Asian nations have
converted their outstanding external defaulted commercial bank loans into
bonds. Certain Brady Bonds have been collateralized, as to principal due at
maturity, by U.S. Treasury zero coupon bonds with a maturity date equal to
the final maturity date of such Brady Bonds.

(f) Payment in kind security.

(g) Security is accruing at less than the stated coupon.

PORTFOLIO COMPOSITION BY CREDIT QUALITY

The following table summarizes the portfolio composition at March 31, 1999,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.

<TABLE>
<S> <C>
U.S. Government and U.S. Government Agency Obligations...... 27.7%
AAA......................................................... 7.5%
AA.......................................................... 1.4%
A........................................................... 4.6%
BBB......................................................... 16.2%
BB.......................................................... 19.1%
B........................................................... 16.2%
CCC......................................................... 1.7%
Non-Rated................................................... 5.6%
------
100.0%
======
</TABLE>

See Notes to Financial Statements

F-11
<PAGE> 366

STATEMENT OF ASSETS AND LIABILITIES

March 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $159,041,593)....................... $151,784,163
Cash........................................................ 81,577
Receivables:
Interest.................................................. 2,372,644
Investments Sold.......................................... 2,121,679
Variation Margin on Futures............................... 5,313
Fund Shares Sold.......................................... 113,714
------------
Total Assets.......................................... 156,479,090
------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 19,525,597
Reverse Repurchase Agreements............................. 14,198,386
Investments Purchased..................................... 12,817,783
Income Distributions...................................... 406,856
Fund Shares Repurchased................................... 254,743
Distributor and Affiliates................................ 122,030
Investment Advisory Fee................................... 63,240
Forward Currency Contracts................................ 42,572
Options at Market Value (net of premium received of
$44,331)................................................ 23,828
Accrued Expenses............................................ 274,494
Trustees' Deferred Compensation and Retirement Plans........ 128,140
------------
Total Liabilities..................................... 47,857,669
------------
NET ASSETS.................................................. $108,621,421
============
NET ASSETS CONSIST OF:
Capital..................................................... $129,092,655
Accumulated Distribution in Excess of Net Investment
Income.................................................... (2,156,891)
Net Unrealized Depreciation................................. (7,276,985)
Accumulated Net Realized Loss............................... (11,037,358)
------------
NET ASSETS.................................................. $108,621,421
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $41,769,149 and 3,791,107 shares of
beneficial interest issued and outstanding)............. $ 11.02
Maximum sales charge (4.75%* of offering price)......... .55
------------
Maximum offering price to public........................ $ 11.57
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $62,812,837 and 5,696,756 shares of
beneficial interest issued and outstanding)............. $ 11.03
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,039,435 and 366,787 shares of
beneficial interest issued and outstanding)............. $ 11.01
============
</TABLE>

*On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

F-12
<PAGE> 367

STATEMENT OF OPERATIONS

For the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $6,272 and
$9,201, respectively)................................. $ 9,534,743 $ 13,354,450
Dividends (Net of foreign withholding taxes of $53 for
the year ended June 30, 1998)......................... 317,905 786,323
----------------- -------------
Total Income...................................... 9,852,648 14,140,773
----------------- -------------
EXPENSES:
Investment Advisory Fee................................. 893,505 1,262,844
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $79,675, $516,080 and $30,378,
respectively, for the nine months ended March 31, 1999
and $113,849, $781,645 and $37,816, respectively, for
the year ended June 30, 1998)......................... 626,133 933,310
Shareholder Services.................................... 136,421 185,508
Custody................................................. 72,673 86,456
Trustees' Fees and Expenses............................. 23,540 29,318
Amortization of Organizational Costs.................... 17,037 33,982
Legal................................................... 12,330 16,532
Other................................................... 205,468 343,480
----------------- -------------
Total Operating Expenses.......................... 1,987,107 2,891,430
Less Fees Waived and Reimbursed................... 247,950 118,837
----------------- -------------
Net Operating Expenses............................ 1,739,157 2,772,593
Interest Expense.................................. 1,555,993 2,151,078
----------------- -------------
NET INVESTMENT INCOME................................... $ 6,557,498 $ 9,217,102
================= =============
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments........................................... $ (2,874,213) $ 3,963,593
Options............................................... 72,983 (467,470)
Futures............................................... (3,419,038) (3,234,026)
Forwards.............................................. (94,457) (1,497,004)
Foreign Currency Transactions......................... (440,510) (19,018)
----------------- -------------
Net Realized Loss....................................... (6,755,235) (1,253,925)
----------------- -------------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................. (1,176,688) 2,587,120
----------------- -------------
End of the Period:
Investments........................................... (7,257,430) (431,623)
Options............................................... 20,503 311,905
Futures............................................... (74,688) (727,773)
Forwards.............................................. 44,812 (329,325)
Foreign Currency Translation.......................... (10,182) 128
----------------- -------------
(7,276,985) (1,176,688)
----------------- -------------
Net Unrealized Depreciation During the Period........... (6,100,297) (3,763,808)
----------------- -------------
NET REALIZED AND UNREALIZED LOSS........................ $ (12,855,532) $ (5,017,733)
================= =============
NET INCREASE/DECREASE IN NET ASSETS FROM OPERATIONS..... $ (6,298,034) $ 4,199,369
================= =============
</TABLE>

See Notes to Financial Statements

F-13
<PAGE> 368

STATEMENT OF CHANGES IN NET ASSETS

For the Nine Months Ended March 31, 1999,
the Years Ended June 30, 1998 and June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
March 31, 1999 June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 6,557,498 $ 9,217,102 $ 8,581,357
Net Realized Gain/Loss............................... (6,755,235) (1,253,925) 2,999,390
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (6,100,297) (3,763,808) 3,381,566
----------------- ------------- -------------
Change in Net Assets from Operations................. (6,298,034) 4,199,369 14,962,313
----------------- ------------- -------------
Distributions from Net Investment Income............. (6,557,498) (9,238,901) (8,604,269)
Distributions in Excess of Net Investment Income..... (247,334) -0- (27,347)
----------------- ------------- -------------
Distributions from and in Excess of Net Investment
Income*............................................. (6,804,832) (9,238,901) (8,631,616)
----------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.......................................... (13,102,866) (5,039,532) 6,330,697
----------------- ------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 20,972,354 37,212,204 40,557,345
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 3,077,004 4,088,237 3,498,095
Cost of Shares Repurchased........................... (27,689,372) (34,763,480) (25,388,033)
----------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... (3,640,014) 6,536,961 18,667,407
----------------- ------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS................ (16,742,880) 1,497,429 24,998,104
NET ASSETS:
Beginning of the Period.............................. 125,364,301 123,866,872 98,868,768
----------------- ------------- -------------
End of the Period (Including accumulated
undistributed net investment income of ($2,156,891),
($1,909,557), and $150,395, respectively)........... $ 108,621,421 $ 125,364,301 $ 123,866,872
================= ============= =============
*Distributions by Class
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................................... $ (2,678,679) $ (3,523,499) $ (3,189,748)
Class B Shares...................................... (3,896,704) (5,451,394) (5,177,891)
Class C Shares...................................... (229,449) (264,008) (263,977)
----------------- ------------- -------------
$ (6,804,832) $ (9,238,901) $ (8,631,616)
================= ============= =============
</TABLE>

See Notes to Financial Statements

F-14
<PAGE> 369

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Nine Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class A Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $12.286 $12.778 $12.065 $11.704 $11.975 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income....... .679 .973 1.019 1.013 .657 .566
Net Realized and Unrealized
Gain/Loss................. (1.236) (.489) .714 .446 .272 (2.391)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ (.557) .484 1.733 1.459 .929 (1.825)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .711 .976 1.020 1.098 .793 .500
Return of Capital
Distribution............ -0- -0- -0- -0- .407 -0-
------- ------- ------- ------- ------- -------
Total Distributions......... .711 .976 1.020 1.098 1.200 .500
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $11.018 $12.286 $12.778 $12.065 $11.704 $11.975
======= ======= ======= ======= ======= =======
Total Return* (a)........... (4.47%)** 3.89% 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of the
Period (In millions)...... $ 41.8 $ 45.3 $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating Expenses
to Average Net Assets*.... 1.53% 1.68% 1.81% 1.84% 1.98% 1.88%
Ratio of Interest Expense to
Average Net Assets........ 1.79% 1.69% 1.99% 2.27% 2.38% .96%
Ratio of Net Investment
Income to Average Net
Assets*................... 8.06% 7.72% 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover.......... 282%** 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Operating Expenses
to Average Net Assets..... 1.82% 1.78% 1.86% 1.92% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 7.78% 7.63% 8.07% 8.26% 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 Notes to Financial Statements

F-15
<PAGE> 370
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Nine Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class B Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $12.286 $12.779 $12.069 $11.706 $11.968 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income.... .622 .878 .920 .926 .585 .515
Net Realized and
Unrealized Gain/Loss... (1.243) (.491) .717 .443 .245 (2.392)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.621) .387 1.637 1.369 .830 (1.877)
------- ------- ------- ------- ------- -------
Less:
Distributions from and
in Excess of Net
Investment Income.... .639 .880 .927 1.006 .722 .455
Return of Capital
Distribution......... -0- -0- -0- -0- .370 -0-
------- ------- ------- ------- ------- -------
Total Distributions...... .639 .880 .927 1.006 1.092 .455
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $11.026 $12.286 $12.779 $12.069 $11.706 $11.968
======= ======= ======= ======= ======= =======
Total Return* (a)........ (4.99%)** 3.11% 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of the
Period (In millions)... $ 62.8 $ 76.2 $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating
Expenses to Average Net
Assets*................ 2.29% 2.44% 2.57% 2.59% 2.68% 2.63%
Ratio of Interest Expense
to Average Net
Assets................. 1.80% 1.69% 1.98% 2.26% 2.38% .96%
Ratio of Net Investment
Income to Average Net
Assets*................ 7.30% 6.96% 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover....... 282%** 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating
Expenses to Average Net
Assets................. 2.58% 2.54% 2.61% 2.67% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................. 7.02% 6.86% 7.28% 7.50% 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 Notes to Financial Statements

F-16
<PAGE> 371
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Nine Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class C Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $12.274 $12.768 $12.059 $11.699 $11.966 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income...... .607 .876 .913 .944 .598 .509
Net Realized and Unrealized
Gain/Loss................ (1.229) (.490) .723 .422 .227 (2.388)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.622) .386 1.636 1.366 .825 (1.879)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net
Investment Income...... .639 .880 .927 1.006 .722 .455
Return of Capital
Distribution........... -0- -0- -0- -0- .370 -0-
------- ------- ------- ------- ------- -------
Total Distributions........ .639 .880 .927 1.006 1.092 .455
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period................... $11.013 $12.274 $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======= ======= =======
Total Return* (a).......... (5.01%)** 3.03% 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the
Period (In millions)..... $ 4.0 $ 3.9 $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating Expenses
to Average Net Assets*... 2.28% 2.44% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense
to Average Net Assets.... 1.77% 1.69% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment
Income to Average Net
Assets*.................. 7.29% 6.96% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover......... 282%** 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating Expenses
to Average Net Assets.... 2.57% 2.54% 2.61% 2.66% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................... 7.01% 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 Notes to Financial Statements

F-17
<PAGE> 372

NOTES TO FINANCIAL STATEMENTS

March 31, 1999
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Strategic Income Fund (the "Fund") is organized as a series of Van
Kampen Trust (the "Trust"), a Delaware business trust, and is registered as a
non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's primary investment objective is to
seek to provide shareholders with high current income, while its secondary
investment objective is to seek capital appreciation. The Fund will allocate its
investments among 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. The Fund borrows money for investment purposes which will
create the opportunity for enhanced return, but also should be considered a
speculative technique and may increase the Fund's volatility. The Fund commenced
investment operations on December 31, 1993, with three classes of common shares,
Class A, Class B and Class C shares. In July 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from June 30 to March 31. As a
result, this financial report reflects the nine-month period commencing on July
1, 1998, and ending on March 31, 1999.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.

A. SECURITY VALUATION--Investments are stated at value using market quotations,
prices provided by market makers or, if such valuations are not available,
estimates obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Board of Trustees. Foreign investments are stated at value using the last
available bid price or yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may

F-18
<PAGE> 373
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

purchase and sell securities on a "when issued" or "delayed delivery" basis,
with settlement to occur at a later date. The value of the security so purchased
is subject to market fluctuations during this period. The Fund will maintain, in
a segregated account with its custodian, assets having an aggregate value at
least equal to the amount of the when issued or delayed delivery purchase
commitments until payment is made.

C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Expenses of the
Fund are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.

E. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $170,000. These costs were amortized on a
straight line basis over the 60 month period ended December 31, 1998.

F. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required. Although the
Fund's fiscal year end was recently changed from June 30 to March 31, the Fund's
tax year end remains June 30.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $4,278,802 which will expire between June 30, 2003 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31

F-19
<PAGE> 374
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

losses which are not recognized for tax purposes until the first day of the
following tax year, wash sales, the difference in the Fund's tax year end, and
gains or losses recognized for tax purposes on open options, futures and forward
transactions.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $159,237,593; the aggregate gross unrealized
appreciation is $1,998,380 and the aggregate gross unrealized depreciation is
$9,450,476, resulting in net unrealized depreciation on long- and short-term
investments and swaps of $7,452,096.

G. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays dividends
monthly from net investment income. Net investment income for federal income tax
purposes includes gains and losses realized on transactions in foreign
currencies and options and futures on foreign currencies. These realized gains
and losses are included as net realized gains or losses for financial reporting
purposes. Net realized gains, if any, are distributed annually.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's taxable year (June 30). Therefore, while it is
likely that a portion of the Fund's distribution will ultimately be
characterized as a return of capital for tax purposes, no such designation has
been made for the nine months ended March 31, 1999. At June 30, 1998, permanent
book and tax basis differences relating to the recognition of net realized
losses on foreign currency transactions totaling $2,038,153 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. ("the Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
AVERAGE MANAGED ASSETS % PER ANNUM
- --------------------------------------------------------------------
<S> <C>
First $500 million..................................... .75 of 1%
Next $500 million...................................... .70 of 1%
Over $1 billion........................................ .65 of 1%
</TABLE>

For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Adviser voluntarily waived approximately $248,000 and $86,000, respectively,
of its investment advisory fees. This waiver is voluntary and can be
discontinued at any time.

F-20
<PAGE> 375
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Additionally, for the year ended June 30, 1998, the Adviser voluntarily assumed
approximately $33,000 of the Fund's registration and filing fees.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $2,900 and $4,600, respectively,
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $21,200 and $29,600, respectively,
representing Van Kampen's cost of providing accounting, cash management and
legal services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the nine months
ended March 31, 1999 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $98,400 and $129,400, respectively. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.

F-21
<PAGE> 376
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At March 31, 1999, capital aggregated $49,062,509, $75,267,108 and
$4,763,038 for Classes A, B and C, respectively. For the nine months ended March
31, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 797,826 $ 9,027,495
Class B.................................... 895,851 10,155,513
Class C.................................... 156,680 1,789,346
---------- ------------
Total Sales.................................. 1,850,357 $ 20,972,354
========== ============
Dividend Reinvestment:
Class A.................................... 112,529 $ 1,258,452
Class B.................................... 148,695 1,664,203
Class C.................................... 13,820 154,349
---------- ------------
Total Dividend Reinvestment.................. 275,044 $ 3,077,004
========== ============
Repurchases:
Class A.................................... (807,350) $ (9,050,583)
Class B.................................... (1,549,706) (17,323,867)
Class C.................................... (117,752) (1,314,922)
---------- ------------
Total Repurchases............................ (2,474,808) $(27,689,372)
========== ============
</TABLE>

F-22
<PAGE> 377
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At June 30, 1998, capital aggregated $47,827,145, $80,771,259 and $4,134,265
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,118,648 $ 14,164,929
Class B.................................... 1,677,599 21,153,724
Class C.................................... 150,464 1,893,551
---------- ------------
Total Sales.................................. 2,946,711 $ 37,212,204
========== ============
Dividend Reinvestment:
Class A.................................... 131,101 $ 1,649,403
Class B.................................... 180,125 2,266,285
Class C.................................... 13,723 172,549
---------- ------------
Total Dividend Reinvestment.................. 324,949 $ 4,088,237
========== ============
Repurchases:
Class A.................................... (990,262) $(12,470,355)
Class B.................................... (1,620,464) (20,396,054)
Class C.................................... (150,449) (1,897,071)
---------- ------------
Total Repurchases............................ (2,761,175) $(34,763,480)
========== ============
</TABLE>

F-23
<PAGE> 378
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $44,483,168, $77,747,304 and $3,965,236
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,136,784 $ 14,246,123
Class B.................................... 1,951,416 24,358,899
Class C.................................... 156,283 1,952,323
---------- ------------
Total Sales.................................. 3,244,483 $ 40,557,345
========== ============
Dividend Reinvestment:
Class A.................................... 102,757 $ 1,289,971
Class B.................................... 163,577 2,052,790
Class C.................................... 12,383 155,334
---------- ------------
Total Dividend Reinvestment.................. 278,717 $ 3,498,095
========== ============
Repurchases:
Class A.................................... (614,505) $ (7,723,135)
Class B.................................... (1,282,624) (16,096,646)
Class C.................................... (125,528) (1,568,252)
---------- ------------
Total Repurchases............................ (2,022,657) $(25,388,033)
========== ============
</TABLE>

F-24
<PAGE> 379
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

For the nine months ended March 31, 1999 and the year ended June 30, 1998,
Van Kampen, as Distributor for the Fund, received commissions on sales of the
Fund's Class A shares of approximately $15,100 and $27,600, respectively, and
CDSC on redeemed shares of approximately $169,500 and $236,400, respectively.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS
For the nine months ended March 31, 1999, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $447,277,701
and $469,694,392, respectively. For the year ended June 30, 1998, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments, were $858,569,959 and $859,486,340, respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in unrealized appreciation/ depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.

F-25
<PAGE> 380
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Transactions in options for the nine months ended March 31, 1999 and the
year ended June 30, 1998, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................. 1,627 $ (246,766)
Options Written and Purchased (Net)........... 3,233 (1,540,015)
Options Terminated in Closing
Transactions (Net).......................... (3,781) 1,130,290
Options Expired (Net)......................... (778) 384,716
------ -----------
Outstanding at June 30, 1998.................. 301 (271,775)
Options Written and Purchased (Net)........... 650 72,144
Options Terminated in Closing
Transactions (Net).......................... (626) 218,593
Options Expired (Net)......................... (300) 25,369
------ -----------
Outstanding at March 31, 1999................. 25 $ 44,331
====== ===========
</TABLE>

The related futures contracts of the outstanding option transactions as of
March 31, 1999, and the description and market value are as follows:

<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
DESCRIPTION CONTRACTS EXERCISE PRICE OPTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Future
Jun 1999--Purchased Put....... 25 Jun/122 $23,828
== =======
</TABLE>

B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.

F-26
<PAGE> 381
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Transactions in futures contracts for the nine months ended March 31, 1999
and the year ended June 30, 1998, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997.............................. 689
Futures Opened............................................ 7,096
Futures Closed............................................ (7,156)
------
Outstanding at June 30, 1998.............................. 629
Futures Opened............................................ 3,229
Futures Closed............................................ (3,708)
------
Outstanding at March 31, 1999............................. 150
======
</TABLE>

The futures contracts outstanding as of March 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS
90 Day Eurodollar Future Sept 1999
(Current notional value $237,238 per
contract).............................. 100 (86,250)
SHORT CONTRACTS:
10-Year U.S. Treasury Note Future June
1999
(Current notional value $114,688 per
contract).............................. 50 11,562
--- --------
150 $(74,688)
=== ========
</TABLE>

F-27
<PAGE> 382
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

At March 31, 1999, the Fund has outstanding forward currency contracts as
follows:

<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
Eurodollar,
2,331,496 expiring 4/15/99............... $2,523,090 $14,511
Eurodollar,
4,582,321 expiring 4/29/99............... 4,962,853 37,147
Eurodollar,
929,593 expiring 4/30/99................. 1,006,846 (6,846)
---------- -------
$8,492,789 $44,812
========== =======
</TABLE>

D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transactions at the time the forward commitment is closed. Risk may
result due to the potential inability of counterparties to meet the terms of
their contracts. At March 31, 1999, the Fund has a net realized loss on closed
but unsettled forward currency contracts of $87,384 scheduled to settle between
April 15, 1999 and June 30, 1999. This amount is due from two counterparties,
the largest portion due from one counterparty represents 57% of this receivable.

E. SWAP TRANSACTIONS--These securities, which are identified in the portfolio of
investments, represent an agreement between two parties to exchange a series of
cash flows based upon various indices at specified intervals.

F. INVERSE FLOATING SECURITY--These instruments have a coupon which is inversely
indexed to a short-term floating interest rate multiplied by a specified factor.
As the floating rate rises, the coupon is reduced. Conversely, as the floating
rate declines, the coupon is increased. The price of these securities may be
more volatile than the price of a comparable fixed rate security. These
instruments are typically used by the Fund to enhance the yield of the
portfolio.

G. INTEREST ONLY/PRINCIPAL ONLY SECURITIES--A Mortgage-Backed Security or U.S.
Treasury Obligation may be stripped to create an Interest Only (IO) security and
a Principal

F-28
<PAGE> 383
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

Only (PO) security. An IO represents ownership in the cash flows of the interest
payments or coupon payments made. The cash flow from an IO instrument decreases
as the borrower repays the principal balance. Conversely, a PO represents
ownership in the cash flows of the principal payments made. A PO created from a
U.S. Treasury Obligation becomes a zero coupon bond. The cash flow on a PO
instrument increases as the borrowers repay the principal balance. These
instruments are typically used to manage interest rate exposure in the fund's
portfolio.

6. MORTGAGE-BACKED SECURITIES
A Mortgage-Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies such as Federal National Mortgage Association (FNMA).
A REMIC (Real Estate Mortgage Investment Conduit) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics.

7. ASSET-BACKED SECURITIES
An Asset-Backed Security (ABS) is a security collateralized by assets such as
installment loans, leases, mortgage loans, receivables or other kinds of assets
that are issued independently of the originator.

8. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended March 31, 1999 and the year ended June 30, 1998, are
payments retained by Van Kampen of approximately $409,600 and $604,600,
respectively.

9. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements or dollar rolls for investment
purposes in an amount up to 33.3% of its total assets.

F-29
<PAGE> 384
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

March 31, 1999
- --------------------------------------------------------------------------------

The Fund has entered into a $60,000,000 revolving credit agreement which
expires on May 31, 1999. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at March 31,
1999, was 5.550%. An annual facility fee of .075% is charged on the unused
portion of the credit line.
The Fund has entered into reverse repurchase agreements with Warburg Dillon
Read LLC, under which the Fund sells securities and agrees to repurchase them on
April 1, 1999 at a mutually agreed upon price. For the nine months ended March
31, 1999, the average interest rate in effect for reverse repurchase agreements
was 3.950%.
The average daily balance of bank borrowings and reverse repurchase
agreements for the nine months ended March 31, 1999, was approximately
$42,929,000 with an average interest rate of 4.67%.
At March 31, 1999, these agreements represented 21.6% of the Fund's total
assets.

F-30
<PAGE> 385

PART C: OTHER INFORMATION

ITEM 23. EXHIBITS:
(a)(1) Agreement and Declaration of Trust(4)

(2) Second Certificate of Amendment(7)

(3) 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)

(iv) Van Kampen Managed Short-Term Income Fund(9)

(b) By-Laws(4)
(c) Specimen Share Certificates for:
(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)

(iv) Van Kampen Managed Short-Term Income Fund

(1) Class A Shares(9)

(2) Class B Shares(9)

(3) Class C Shares(9)

(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)

(iv) Van Kampen Managed Short-Term Income Fund(9)

(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)

(iv) Van Kampen Managed Short-Term Income Fund(9)

(2) Form of Dealer Agreement(9)

(3) Form of Broker Fully Disclosed Clearing Agreement(9)

(4) Form of Bank Fully Disclosed Clearing Agreement(9)

(f)(1) Form of Trustee Deferred Compensation Plan(8)
(2) Form of Trustee Retirement Plan(8)

(g)(1) Custodian Contract(9)

(2) Transfer Agency and Service Agreement(6)

(h)(1) Fund Accounting Agreement(9)

(2) Amended and Restated Legal Services Agreement(9)

(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)

(iv) Van Kampen Managed Short-Term Income Fund++

C-1
<PAGE> 386

(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+

(iv) Van Kampen Managed Short-Term Income Fund++

(k) Not Applicable
(l) Letter of Understanding relating to initial capital(5)
(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)

(iv) Van Kampen Managed Short-Term Income Fund(9)

(2) Form of Shareholder Assistance Agreement(9)

(3) Form of Administrative Services Agreement(9)

(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)

(iv) Van Kampen Managed Short-Term Income Fund(9)

(o)(1) Amended Multi-Class Plan(6)

(2) Van Kampen Short-Term Income Fund Multi-Class Plan(9)

(p) Power of Attorney+

(z)(1) List of certain investment companies in response to Item
27(a)+

(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)+

- ---------------
(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. 44 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on May 28, 1999.

(9) Incorporated herein by reference to Post-Effective Amendment No. 45 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410 as
filed on July 21, 1999.

+ Filed herewith.

++ To be filed by further amendment.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

See the Statement of Additional Information.

C-2
<PAGE> 387

ITEM 25. INDEMNIFICATION.

Pursuant to Del. Code Ann. Title 12 Section 3817, a Delaware business trust
may provide in its governing instrument for the indemnification of its officers
and trustees from and against any and all claims and demands whatsoever.

Reference is made to Article 8, Section 8.4 of the Registrant's 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, 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 "1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, 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 1933 Act and
will be governed by the final adjudication of such issue.

Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds, Inc. (the
"Distributor") and each of its trustees and officers and each person if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damages,
or expense and reasonable counsel fees) arising by reason of any person
acquiring any shares, based upon the ground that the Registration Statement,
prospectus, shareholder reports or other information filed or made public by the
Registrant (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in

C-3
<PAGE> 388

order to make the statements not misleading under the 1933 Act, or any other
statue or the common law. The Registrant does not agree to indemnify the
Distributor or hold it harmless to the extent that the statement or omission was
made in reliance upon, and in conformity with, information furnished to the
Registrant by or on behalf of the Distributor. In no case in the indemnity of
the Registrant in favor of the Distributor or any person indemnified to be
deemed to protect the Distributor or any person against any liability to the
Fund or its security holders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the agreement.

See also "Investment Advisory Agreement" in the Statement of Additional
Information.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in each Prospectus and "Investment
Advisory Agreement," "Other Agreements" and "Trustees and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen 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 the Adviser, 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) incorporated by reference herein.

(b) Van Kampen Funds Inc., is an affiliated person of the Registrant and is
the only principal underwriter for the Registrant. The name, principal business
address and positions and offices with Van Kampen Funds Inc. of each of the
trustees 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 the
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 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.

C-4
<PAGE> 389

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN TRUST, certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Oakbrook Terrace and the State of
Illinois, on the 29th day of July, 1999.

VAN KAMPEN TRUST

By: /s/ A. THOMAS SMITH III

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

A. Thomas Smith III, Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on July 29, 1999 by the following
persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:

/s/ RICHARD F. POWERS III* President
- -----------------------------------------------------
Richard F. Powers III

Principal Financial Officer:

/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
John L. Sullivan

Trustees:

/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan

/s/ JERRY D. CHOATE* Trustee
- -----------------------------------------------------
Jerry D. Choate

/s/ 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
</TABLE>

<PAGE> 390

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>

/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto

/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen

/s/ SUZANNE H. WOOLSEY* Trustee
- -----------------------------------------------------
Suzanne H. Woolsey

/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
- ------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.

/s/ A. THOMAS SMITH III July 29, 1999
- -----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>

<PAGE> 391

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 46 TO FORM N-1A

AS SUBMITTED TO THE SECURITIES AND EXCHANGE

COMMISSION ON JULY 29, 1999

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>

(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
(p) Power of Attorney
(z) (1) List of certain investment companies in response to Item
27(a).
(2) List of officers and directors of Van Kampen Funds Inc.
in response to Item 27(b).
</TABLE>

<PAGE> 1

EXHIBIT (j)(i)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders
Van Kampen High Yield Fund:

We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the headings "Financial Highlights" in the
Prospectus and "Other Information" in the Statement of Additional Information.

/s/ KPMG LLP

Chicago, Illinois
July 29, 1999

<PAGE> 1

EXHIBIT (j)(ii)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders
Van Kampen Short-Term Global Income Fund:

/s/ KPMG LLP

Chicago, Illinois
July 29, 1999

<PAGE> 1

EXHIBIT (j)(iii)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders
Van Kampen Strategic Income Fund:

/s/ KPMG LLP

Chicago, Illinois
July 29, 1999

<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 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 Richard F. Powers, III, Dennis J. McDonnell and Thomas A. Smith
III, each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with
full power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.

This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.

Dated: June 23, 1999

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD F. POWERS III President
--------------------------
Richard F. Powers III

/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer
-------------------------- and Treasurer
John L. Sullivan

/s/ J. MILES BRANAGAN Trustee/Director
--------------------------
J. Miles Branagan

/s/ JERRY D. CHOATE Trustee/Director
--------------------------
Jerry D. Choate

/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/ SUZANNE H. WOOLSEY Trustee/Director
--------------------------
Suzanne H. Woolsey

/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 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 LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST

<PAGE> 1
EXHIBIT (z)(1)

Item 27(a)
- ----------

Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen California Tax Free Income Fund*
Van Kampen Michigan Tax Free Income Fund*
Van Kampen Missouri Tax Free Income Fund*
Van Kampen Ohio Tax Free Income Fund*
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Great American Companies Fund
Van Kampen Growth Fund
Van Kampen Mid Cap Value Fund
Van Kampen Prospector Fund
Van Kampen Small Cap Value Fund*
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund*
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate 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 Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 2

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 on behalf of its series
Asset Allocation Portfolio
Comstock Portfolio*
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax - Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen Aggressive Equity Fund
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Morgan Stanley Government Obligations Money Market Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund*
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund*
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE> 3

<TABLE>
<S> <C>
Insured Municipals Income Trust Series 412
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 181
Florida Insured Municipals Income Trust Series 126
Michigan Insured Municipals Income Trust Series 158
Missouri Insured Municipals Income Trust Series 112
Pennsylvania Insured Municipals Income Trust Series 244
Van Kampen Focus Portfolios Insured Income Trust Series 74
Internet Trust Series 15
The Dow SM Strategic 10 Trust July 1999
Series
The Dow SM Strategic 10 Trust July 1999
Traditional Series
The Dow SM Strategic 5 Trust July 1999
Series
The Dow SM Strategic 5 Trust July 1999
Traditional Series
EAFE Strategic 20 Trust July 1999 Series

Strategic Picks Opportunity Trust July 1999 Series

Great International Firms Trust Series 9
Brand Name Equity Trust Series 10
Dow 30 Index Trust Series 7
Dow 30 Index and Treasury Trust Series 9
Global Energy Trust Series 10
Financial Institutions Trust Series 1
Edward Jones Select Growth Trust July 1999
Series
Morgan Stanley High-Technology 35 Index Trust Series 7
Pharmaceutical Trust Series 6
Telecommunications and Bandwidth Trust Series 6
Utility Trust Series 6
</TABLE>

<PAGE> 4

<TABLE>
<S> <C>
Roaring 2000s Trust Series 2
Roaring 2000s Trust Traditional Series 2
Josepthal - The Online Portfolio Series 1
NatCity - Great American Equities Trust Series 2
Baird - Financial Institutions Trust 1999 Series
Josepthal - Europe/Pacific Strategy Trust Series 2
</TABLE>

* Funds that have not commenced investment operations.

<PAGE> 1
EXHIBIT (z)(2)

Item 27(b)
- ----------
<TABLE>

<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Administrative Officer Oakbrook Terrace, IL
Paul R. Wolkenberg Executive Vice President Oakbrook Terrace, IL

Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
James J. Boyne Sr. Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod, Sr. Vice President Annapolis, MD
Steven T. Johnson Sr. Vice President Oakbrook Terrace, IL
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Colette M. Saucedo Sr. Vice President Houston, TX
Frederick Shepherd Sr. Vice President Houston, TX
Steven P. Sorenson Sr. Vice President Oakbrook Terrace, IL
Michael L. Stallard Sr. Vice President Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds

Patricia A. Bettlach 1st Vice President Chesterfield, MO
Glenn M. Cackovic 1st Vice President Laguna Niguel, CA
Eric J. Hargens 1st Vice President Orlando, FL
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Carl Mayfield 1st Vice President Lakewood, CO
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
George J. Vogel 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>

<PAGE> 2

<TABLE>
<S> <C> <C>
James R. Yount 1st Vice President Mercer Island, WA

James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Scott C. Bemstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Daniel R. Chambers Vice President Austin, TX
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Christopher J. Egan Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Senior Compliance Director Oakbrook Terrace, IL
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>

<S> <C> <C>
S. William Lehew III Vice President Charlotte, NC
Eric Levinson Vice President San Francisco, CA
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
Todd W. Page Vice President Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Fairlawn, OH
Daniel D. Reams Vice President Royal Oak, MI
Michael W. Rohr Vice President Oakbrook Terrace. IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Kimberly M. Spangler Vice President Fairfax, VA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Todd A. Volkman Vice President Austin, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Weston B. Wetherell Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>

<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL

Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Gregory T. Brunk Asst. Vice President Oakbrook Terrace, IL
Gina Costello Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Thomas J. Sauerborn Asst. Vice President New York, NY
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL

Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Theresa M. Renn Officer Oakbrook Terrace, IL
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
Richard F. Powers III Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
</TABLE>