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VAN KAMPEN AMERICAN CAPITAL
GLOBAL EQUITY FUND
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Van Kampen American Capital Global Equity Fund, formerly known as American
Capital Global Equity Fund (the "Fund"), is a professionally managed mutual fund
organized as a diversified open-end series of Van Kampen American Capital World
Portfolio Series Trust (the "Trust"). The Fund seeks long-term growth of capital
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is
(800) 421-5666.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated September 1, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or, for Telecommunications Device For
the Deaf, (800) 772-8889.
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VAN KAMPEN AMERICAN CAPITAL SM
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THIS PROSPECTUS IS DATED SEPTEMBER 1, 1995.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................................... 3
Shareholder Transaction Expenses................................. 5
Annual Fund Operating Expenses and Example....................... 6
Financial Highlights............................................. 8
The Trust........................................................ 9
Investment Objective and Policies................................ 9
Investment Practices............................................. 13
Investment Advisory Services..................................... 18
Alternative Sales Arrangements................................... 20
Purchase of Shares............................................... 23
Shareholder Services............................................. 33
Redemption of Shares............................................. 37
Distribution Plans............................................... 40
Distributions from the Fund...................................... 42
Tax Status....................................................... 43
Fund Performance................................................. 44
Description of Shares of the Fund................................ 46
Additional Information........................................... 47
</TABLE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
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PROSPECTUS SUMMARY
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THE FUND. Van Kampen American Capital Global Equity Fund (the "Fund") is a
diversified portfolio of the Trust, an open-end management investment company
organized as a Delaware business trust, and is one of two series of shares which
the Trust is currently authorized to issue.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The Fund seeks long-term growth of capital.
INVESTMENT POLICY. Invests in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. See
"Investment Objective and Policies." Use of options, futures contracts and
related options may include additional risks. See "Investment Practices -- Using
Options, Futures Contracts and Related Options."
INVESTMENT RESULTS. The investment results of the Fund since its inception are
shown in the "Financial Highlights" table. See also "Fund Performance."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class of
shares that best suits their circumstances and objectives. See "Alternative
Sales Arrangements -- Factors for Consideration." Each class of shares
represents an interest in the same portfolio of investments of the Fund. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Alternative Sales Arrangements." For
information on redeeming shares see "Redemption of Shares."
Class A Shares. These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of purchase. The Fund pays an annual service
fee of up to 0.25% of its average daily net assets attributable to such class of
shares. See "Purchase of Shares -- Class A Shares" and "Distribution Plans."
Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of five percent of
redemption proceeds during the first year, declining each year thereafter to
zero after the fifth year. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to one percent of its average
daily net assets attributable to such class of shares. See "Purchase of Shares
-- Class B Shares" and "Distribution Plans." Class B shares will convert
automatically to Class A
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shares six years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "Alternative Sales Arrangements --
Conversion Feature."
Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to one percent of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income and capital
gains, if any, are distributed annually. All dividends and distributions are
automatically reinvested in shares of the Fund at net asset value per share
(without sales charge) unless payment in cash is requested. See "Distributions
from the Fund."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund. John Govett & Co. Limited (the
"Subadviser") provides sub-advisory services to the Adviser of the Fund with
respect to the Fund's investments in foreign securities. See "Investment
Advisory Services."
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor").
RISK FACTORS. Investing in common stocks of foreign issuers may subject the Fund
to risks of foreign political, economic and legal conditions and developments.
See "Investment Objective and Policies -- Risk Factors."
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
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SHAREHOLDER TRANSACTION EXPENSES
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ----------- ------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)................. 5.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering price)... None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds)............ None(2) Year 1--5.00% Year 1--1.00%
Year 2--4.00%
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)............. None None None
Exchange fee...................... None None None
</TABLE>
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(1) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a contingent deferred sales charge of one percent may
be imposed on certain redemptions made within one year of the purchase.
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ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management fees (as a percentage of average
daily net assets)........................ 1.00% 1.00% 1.00%
12b-1 Fees (as a percentage of average
daily net assets)(3)..................... .25% 1.00%(5) 1.00%(5)
Other Expenses (as a percentage of average
daily net assets)(4)..................... 1.04% 1.05% 1.05%
Total Fund Operating Expenses (as a
percentage of average daily net
assets).................................. 2.29% 3.05% 3.05%
</TABLE>
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(3) Up to 0.25% for Class A shares and one percent for Class B and C shares. See
"Distribution Plans."
(4) See "Investment Advisory Services."
(5) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
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<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 2.29% for
Class A shares, 3.05% for Class B shares
and 3.05% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $ 79 $125 $173 $305
Class B............................... $ 82 $126 $177 $303*
Class C............................... $ 41 $ 94 $160 $336
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $ 79 $125 $173 $305
Class B............................... $ 31 $ 94 $160 $303*
Class C............................... $ 31 $ 94 $160 $336
</TABLE>
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* Based on conversion to Class A shares after six years.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."
7
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FINANCIAL HIGHLIGHTS
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(Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated)
The following information for each of the three most recent fiscal years ended
May 31, 1995, and the period ended May 31, 1992, has been audited by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
This information should be read in conjunction with the related financial
statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------- ----------------------
YEAR ENDED MAY 31 AUG. 5, 1991(1) YEAR ENDED MAY 31
---------------------------------- TO ----------------------
1995(2) 1994 1993(2) MAY 31, 1992(2) 1995(2) 1994
---------- ---------- ---------- ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....... $11.67 $10.76 $10.44 $9.33 $11.48 $10.67
---------- ---------- ---------- -------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................... .23 .26 .235 .21 .22 .22
Expenses.................................. (.27) (.32) (.325) (.185) (.35) (.35)
Expense reimbursement..................... -- -- .035 -- -- --
---------- ---------- ---------- -------- ---------- ----------
Net investment income (loss)............... (.04) (.06) (.055) .025 (.13) (.13)
Net realized and unrealized gain on
securities................................ .42 1.0125 .7775 1.145 .41 .9825
---------- ---------- ---------- -------- ---------- ----------
Total from investment operations........... .38 .9525 .7225 1.17 .28 .8525
---------- ---------- ---------- -------- ---------- ----------
LESS DISTRIBUTIONS FROM
Net realized gains on securities.......... -- (.0425) (.4025) (.06) -- (.0425)
Excess of book-basis net realized gain
on securities............................ (.26) -- -- -- (.26) --
---------- ---------- ---------- -------- ---------- ----------
Total Distributions........................ (.26) (.0425) (.4025) (.06) (.26) (.0425)
---------- ---------- ---------- -------- ---------- ----------
Net asset value, end of period............. $11.79 $11.67 $10.76 $10.44 $11.50 $11.48
========== ========== ========== ======== ========== ==========
TOTAL RETURN(3)............................ 3.36% 9.17% 7.13% 12.56% 2.62% 8.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)....... $60.1 $41.8 $12.7 $8.4 $64.7 $48.8
Ratios to average net assets (annualized)
Expenses.................................. 2.29% 2.46% 2.93% 2.07% 3.05% 3.21%
Expenses, without expense reimbursement... -- -- 3.28% -- -- --
Net investment income..................... (.35%) (.46%) (.57%) .29% (1.11%) (1.19%)
Net investment income, without expense
reimbursement........................... -- -- (.92%) -- -- --
Portfolio turnover rate.................... 120% 116% 120% 135% 120% 116%
<CAPTION>
CLASS B CLASS C(2)
-------------------------------- ----------------------------------
YEAR ENDED NOV. 15, 1991(1) YEAR ENDED JUNE 21, 1993(1)
MAY 31, TO MAY 31, TO
1993(2) MAY 31, 1992(2) 1995 MAY 31, 1994
---------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....... $10.46 $9.78 $11.59 $10.29
--------- ------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................... .235 .16 .22 .24
Expenses.................................. (.435) (.165) (.35) (.37)
Expense reimbursement..................... .065 -- -- --
--------- ------- ------- ---------
Net investment income (loss)............... (.135) (.005) (.13) (.13)
Net realized and unrealized gain on
securities................................ .7475 .745 .41 1.4725
--------- ------- ------- ---------
Total from investment operations........... .6125 .74 .28 1.3425
--------- ------- ------- ---------
LESS DISTRIBUTIONS FROM
Net realized gains on securities.......... (.4025) (.06) -- (.0425)
Excess of book-basis net realized gain on
securities............................... -- -- (.26) --
--------- ------- ------- ---------
Total Distributions........................ (.4025) (.06) (.26) (.0425)
--------- ------- ------- ---------
Net asset value, end of period............. $10.67 $10.46 $11.61 $11.59
========= ======= ======= =========
TOTAL RETURN(3)............................ 6.15% 7.58% 2.60% 13.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)....... $6.9 $1.2 $6.6 $5.1
Ratios to average net assets (annualized)
Expenses.................................. 3.88% 3.11% 3.05% 3.21%
Expenses, without expense reimbursement... 4.50% -- -- --
Net investment income..................... (1.41%) (.12%) (1.13%) (1.15%)
Net investment income, without expense
reimbursement........................... (2.02%) -- -- --
Portfolio turnover rate.................... 120% 135% 120% 116%
</TABLE>
--------------------------------
(1) Commencement of offering of sales.
(2) Based on average month-end share outstanding.
(3) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
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THE TRUST
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The Trust is an open-end, management investment company. This type of company
is commonly known as a mutual fund. A mutual fund provides, for those who have
similar investment goals, a practical and convenient way to invest in a more
diversified portfolio of securities than such investors could assemble
independently by combining their resources in an effort to achieve such goals.
The Fund is a diversified portfolio of the Trust and is one of two series of
shares of beneficial interest which the Trust is currently authorized to issue.
The other series is Van Kampen American Capital Global Government Securities
Fund ("Global Government").
Fourteen Trustees have the responsibility for overseeing the affairs of the
Trust. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056 and the
Subadviser, determine the investment of the Fund's assets. The Adviser also
provides administrative services and manages the Fund's business and affairs.
The Adviser, together with its predecessors, has been in the investment advisory
business since 1926.
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INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide long-term growth of capital
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. The Fund
intends to be invested in equity securities of companies of at least three
countries including the United States. Under normal market conditions, at least
65% of the Fund's total assets are so invested. Equity securities include common
stocks, preferred stocks and warrants or options to acquire such securities. In
selecting portfolio securities, the Fund attempts to take advantage of the
differences between economic trends and the anticipated performance of
securities markets in various countries.
Normally, the Fund invests in securities of issuers traded on markets of at
least three of the world's six largest countries by market capitalization
(United States, Japan, United Kingdom, Germany, France and Canada), but
securities of issuers traded on quoted markets of other countries are also
considered for investment. The next six largest countries, in terms of market
capitalization, are Switzerland, Italy, Netherlands, Australia, Sweden and
Spain.
The Adviser, subject to the direction of the Trustees, provides the Fund with
an overall investment program consistent with the Fund's objective and policies.
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States. The Subadviser, subject to overall review by
the Adviser and the Trustees and other authorized officers, is responsible for
recommending an optimal
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geographic equity allocation and is responsible for providing advice with
respect to the Fund's investments in countries other than the United States.
Investments may be shifted among the world's various capital markets and among
different types of securities in accordance with ongoing analysis provided by
the Adviser and the Subadviser of trends and developments affecting such markets
and securities. The Adviser and the Subadviser are sometimes referred to as the
Advisers.
While the investment policy of the Fund is to be broadly diversified as to
both countries and individual issuers, the Advisers select individual countries
and securities on the basis of several factors. Investments are allocated among
issuers in countries selected based on a comparison of values between the equity
markets in those countries. This comparison is based upon criteria such as
return on equity, book value, earnings, dividends, and interest rates in each
market. After evaluating these factors and others for each country and comparing
opportunities among countries, the Advisers select those countries which, in
their opinion, have the most attractive equity markets. This evaluation is
influential in deciding the amount of investment in each equity market.
Individual equity securities are selected within each market. The Advisers seek
the most attractive individual equity securities based on factors such as book
value, earnings per share and other financial data. The Advisers' approach to
both country and individual security selection is characterized as a
quantitative method utilizing specific financial criteria to identify both value
and opportunity in the equity markets. The Advisers also endeavor to identify
industry, political, and geographical trends which may affect equity values
within individual countries or among a group of countries. The Advisers use
these financial criteria and analysis of industry, political, and geographical
trends to evaluate and compare equity investment opportunities among various
countries and among securities within each country with the objective of
identifying and investing in those securities which can best meet the Fund's
investment objective. Of course, there is no assurance that the Advisers will be
successful in this endeavor or that the investment objective will be realized.
The Fund may purchase foreign securities in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
representing underlying shares of foreign companies. ADRs are publicly traded on
exchanges or over-the-counter in the United States and are issued through
"sponsored" or "unsponsored" arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the depositary's
transaction fees, whereas under an unsponsored arrangement, the foreign issuer
assumes no obligations and the depositary's transaction fees are paid by the ADR
holders. In addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements. For further information on
ADRs and EDRs, investors should refer to the Statement of Additional
Information.
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The Fund may invest cash temporarily in short-term debt instruments. Such
temporary investments will only be made with cash held to maintain liquidity or
pending investment. See "Temporary Short-Term Investments" herein.
The investment objective and policies, the percentage limitations and the
kinds of securities in which the Fund may invest may be changed by the Trustees
unless expressly governed by those limitations as described under "Investment
Practices -- Investment Restrictions" which can be changed only by action of the
shareholders. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
RISK FACTORS. An investment in the Fund involves risks similar to those of
investing in foreign common stocks generally. Investment in common stocks of
foreign issuers may subject the Fund to risks of foreign political, economic and
legal conditions and developments. Such conditions or developments might include
favorable or unfavorable changes in currency exchange rates, exchange control
regulations (including currency blockage), expropriation of assets of companies,
imposition of withholding taxes on dividend or interest payments, and possible
difficulty in obtaining and enforcing judgments against a foreign issuer. Also,
foreign common stocks may not be as liquid and may be more volatile than
comparable domestic common stocks.
Furthermore, issuers of foreign common stocks are subject to different, often
less comprehensive, accounting, reporting and disclosure requirements than
domestic issuers. The Fund, in connection with its purchases and sales of
foreign securities, other than securities purchased or sold in United States
dollars, will incur transaction costs in converting currencies. Also, brokerage
costs incurred in purchasing and selling securities in foreign securities
markets generally are higher than such costs in comparable transactions in
domestic securities markets, and foreign custodial costs relating to the Fund's
portfolio securities are higher than domestic custodial costs. See also
"Investment Practices" for a discussion of certain additional risks related to
investment practices that may be utilized by the Fund, including use of options,
futures contracts and related options.
FOREIGN CURRENCY TRANSACTIONS. The value of the Fund's portfolio securities
that are traded in foreign markets may be affected by changes in currency
exchange rates and exchange control regulations. In addition, the Fund will
incur costs in connection with conversions between various currencies. The
Fund's foreign currency exchange transactions generally will 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 does not
purchase and sell foreign currencies as an investment.
11
<PAGE> 12
The Fund also may enter into contracts with banks or other foreign currency
brokers or dealers to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
to hedge against changes in foreign currency exchange rates. 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.
The Fund may attempt to hedge against changes in the value of the United
States 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 hedging strategies may be employed before the Fund purchases a
foreign security traded in the hedged 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. Hedging 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 hedging transactions reduce
or preclude the opportunity for gain if the value of the hedged currency should
move in the direction opposite to the hedged position. The Fund will not
speculate in foreign currency forward or futures contracts or through the
purchase and sale of foreign currencies.
TEMPORARY SHORT-TERM INVESTMENTS. It is the Fund's policy to be fully invested
in common stocks and securities convertible into common stocks. However, the
Fund may hold a portion of its assets in cash to meet redemptions and other
day-to-day operating expenses. The Fund may invest cash held for such purposes
in obligations of the United States and of foreign governments, including their
political subdivisions, commercial paper, bankers' acceptances, certificates of
deposit, repurchase agreements collateralized by these securities, and other
short-term evidences of indebtedness. The Fund will only purchase commercial
paper if it is rated Prime-1 or Prime-2 by Moody's Investors Services, Inc. or
A-1 or A-2 by Standard & Poor's Corporation. The Fund also may invest cash held
for such purposes in short-term, high grade foreign debt securities. High grade
foreign debt securities are those debt securities of foreign issuers which the
Advisers determine to have creditworthiness substantially equivalent to that of
domestic issuers of debt securities rated investment grade.
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INVESTMENT PRACTICES
------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic or foreign banks or broker-dealers in order to earn a return on
temporarily available cash. A repurchase agreement is a short-term investment in
which the purchaser (i.e., the Fund) acquires ownership of a debt security and
the seller agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the holding period. Repurchase agreements
involve certain risks in the event of a default by the other party. The Fund
will not invest in repurchase agreements maturing in more than seven days if any
such investment, together with any other illiquid securities held by the Fund,
exceeds ten percent of the value of the Fund's net assets. In the event of the
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience delays in liquidating the underlying securities including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto, (b) possible lack of access to
income on the underlying security during this period, and (c) expenses of
enforcing its rights. See the Statement of Additional Information.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested 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 greater 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 the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Advisers are responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Fund and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution of services on a
continuing basis. The Advisers are authorized to place portfolio transactions
with brokerage firms participating in the distribution of shares of the Fund and
other Van Kampen American Capital mutual funds if it reasonably believes that
the quality of the execution and the commission are comparable to that available
from other qualified firms. The Advisers are authorized to pay higher
commissions to brokerage firms that provide investment and research information
than to firms which do not
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<PAGE> 14
provide such services if the Advisers determine that such commissions are
reasonable in relation to the overall services provided. The information
received may be used by the Advisers in managing the assets of other advisory
accounts as well as in the management of the assets of the Fund.
PORTFOLIO TURNOVER. A change in securities held by the Fund is known as
"portfolio turnover" and may involve the payment by the Fund of brokerage
commissions or dealer mark-up and other transaction costs on the sale of
securities as well as on the investment of the proceeds in other securities. The
portfolio turnover rate for a fiscal year is the ratio of the lesser of
purchases or sales of portfolio securities to the average value of portfolio
securities, excluding debt securities whose maturities at acquisition were one
year or less. The rate may exceed 100% in any given year, which is higher than
that of many other investment companies. The turnover rate will not be a
limiting factor, however, if the Advisers deem portfolio changes appropriate.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
unaffiliated brokers, dealers and financial institutions provided that (a)
immediately after any such loan, the value of the securities loaned does not
exceed 15% of the total value of the Fund's assets, and (b) any securities loan
is collateralized in accordance with applicable regulatory requirements. The
Advisers believe the risk of loss on such transactions is slight, because, if a
borrower were to default for any reason, the collateral should satisfy the
obligation. See the Statement of Additional Information.
RESTRICTED SECURITIES. The Fund may invest up to ten percent of its net assets
in restricted securities and other illiquid assets. As used herein, restricted
securities are those that have been sold in the United States without
registration under the Securities Act of 1933 ("1933 Act") and are thus subject
to restrictions on resale. Excluded from the limitation, however, are any
restricted securities which are eligible for resale pursuant to Rule 144A under
the 1933 Act and which have been determined to be liquid by the Trustees or by
the Advisers pursuant to Board-approved guidelines. The determination of
liquidity is based on the volume of reported trading in the institutional
secondary market for each security. Since it is not possible to predict with
assurance how the markets for restricted securities sold and offered under Rule
144A will develop, the Trustees will carefully monitor the Fund's investment in
these securities focusing on such factors, among others, as valuation, liquidity
and availability of information. This investment practice could have the effect
of increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. These difficulties and delays could result in the Fund's
inability to realize a favorable price upon disposition of restricted
securities, and in some cases might make disposition of such securities at the
time desired by the Fund impossible. Since market quotations are not readily
available for restricted
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<PAGE> 15
securities, such securities will be valued by a method that the Fund's Trustees
believe accurately reflects fair value.
SHORT SALES AGAINST THE BOX. 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 "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. In a short sale, the Fund does not
immediately deliver the securities sold and does not receive the proceeds from
the sale. The Fund is said to have a short position in the securities sold until
it delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund may not make short sales or maintain a short position if to do so
would cause more than 25% of its total assets, taken at market value, to be held
as collateral for such sales.
To secure its obligation to deliver the securities sold short, the Fund will
deposit in escrow in a separate account with its Custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short. However, the Fund
will not purchase and deliver new securities to satisfy its short order if such
purchase and sale would cause such Fund to derive more than 30% of its gross
income from the sale of securities held for less than three months.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to
utilize options, futures contracts and options thereon in several different
ways, depending upon the status of the Fund's portfolio and the Advisers'
expectations concerning the securities markets.
In times of stable or rising security prices, the Fund generally seeks to
obtain maximum exposure to the securities markets, i.e., to be "fully invested."
Nevertheless, even when the Fund is fully invested, prudent management requires
that at least a small portion of assets be available as cash to honor redemption
requests and for other short-term needs. The Fund may also have cash on hand
that has not yet been invested. The portion of the Fund's assets that is
invested in cash equivalents does not fluctuate with security market prices, so
that, in times of rising market prices, the Fund may underperform the market in
proportion to the amount of cash equivalents in its portfolio. By purchasing
futures contracts, however, the Fund can compensate for the cash portion of its
assets and obtain equivalent performance to investing 100% of its assets in
equity securities.
If the Advisers forecast a market decline, the Fund may take a defensive
position, reducing its exposure to the securities markets by increasing its cash
position. By selling futures contracts instead of portfolio securities, a
similar result can be
15
<PAGE> 16
achieved to the extent that the performance of the stock index futures contracts
correlates to the performance of the Fund's portfolio securities. Sale of
futures contracts could frequently be accomplished more rapidly and at less cost
than the actual sale of securities. Once the desired hedged position has been
effected, the Fund could then liquidate securities in a more deliberate manner,
reducing its futures position simultaneously to maintain the desired balance, or
it could maintain the hedged position.
As an alternative to selling stock index futures contracts, the Fund can
purchase stock index puts (or stock index futures puts) to hedge the portfolio's
risk in a declining market. Since the value of a put increases as the index
declines below a specified level, the portfolio's value is protected against a
market decline to the degree the performance of the index correlates with the
performance of the Fund's investment portfolio. If the market remains stable or
advances, the Fund can refrain from exercising the put and its portfolio will
participate in the advance, having incurred only the premium cost for the put.
In certain cases the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed with greater ease and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. See the Statement of Additional
Information for further discussion of options, futures contracts and related
options, and risks related thereto.
Potential Risks of Options, Futures Contracts and Related Options. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to the
Fund, if the Advisers are not successful in employing such instruments in
managing the Fund's investments, the Fund's performance will be worse than if
the Fund did not make such investments. In addition, the Fund would pay
commissions and other costs in connection with such investments, which may
increase the Fund's expenses and reduce its return. The Fund may write or
purchase options in privately negotiated transactions ("OTC Options") as well as
listed options. OTC Options can be closed out only by agreement with the other
party to the transaction. Any OTC Option purchased by the Fund is considered an
illiquid security. Under current policy, any OTC Option written by the Fund will
be with a qualified dealer pursuant to an agreement under which the Fund may
repurchase the option at a formula price. Any such OTC Option is presently
considered illiquid to the extent that the formula price exceeds the intrinsic
value of the option. The Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed five
percent of the fair market value of the Fund's assets. In order to prevent
leverage in connection with the purchase of futures contracts by the
16
<PAGE> 17
Fund, an amount of cash, cash equivalents or liquid high grade debt securities
equal to the market value of the obligation under the futures contracts (less
any related margin deposits) will be maintained in a segregated account with the
Custodian. The Fund may not invest more than ten percent of its net assets in
illiquid securities including OTC Options and repurchase agreements which have a
maturity of longer than seven days.
INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment
restrictions which may not be changed without the approval of the holders of a
majority of the Fund's shares. See the Statement of Additional Information. The
percentage limitations need only be met at the time the investment is made or
other relevant action taken. These restrictions provide, among other things,
that the Fund may not:
1. Purchase any security (other than obligations of the United States
Government, its agencies, or instrumentalities) if more than 25% of its
total assets (taken at current value) would then be invested in a single
industry.
2. Invest more than five percent of its total assets (taken at current
value) in securities of a single issuer other than the United States
Government, its agencies or instrumentalities, or hold more than ten
percent of the outstanding voting securities of an issuer.
3. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of its
net assets, or pledge more than ten percent of its net assets in
connection with permissible borrowings or purchase additional securities
when money borrowed exceeds five percent of its net assets. Margin
deposits or payments in connection with the writing of options or in
connection with the purchase or sale of forward contracts, futures,
foreign currency futures and related options, are not deemed to be a
pledge or other encumbrance.
4. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit and similar evidences of indebtedness, both
foreign and domestic, and (ii) repurchase agreements; or lend securities
in an amount exceeding 15% of the total assets of the Fund. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the original
issuance, is not considered the making of a loan.
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<PAGE> 18
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INVESTMENT ADVISORY SERVICES
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THE ADVISER. The Adviser is a wholly owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and
nearly $50 billion under management or supervision. Van Kampen American
Capital's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.
Van Kampen American Capital Distributors, Inc., the Distributor of the Fund
and the sponsor of the Funds mentioned above, is also a wholly owned subsidiary
of Van Kampen American Capital. Van Kampen American Capital is a wholly owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. C&D L.P. is managed by Clayton Dubilier & Rice, Inc., a New
York based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than seven percent
of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon
the exercise of options, approximately an additional 11% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns or would own five percent or
more of the common stock of VK/AC Holding, Inc.
THE SUBADVISER. The Subadviser provides investment advisory services to the
Adviser of the Fund with respect to the Fund's investments in foreign
securities, including recommending optimal geographic asset allocation and
currency exposure. The Subadviser is a United Kingdom-based investment
management company whose investment management activities originated in the
1920s, and was incorporated in 1955 to provide a corporate structure for a
management group. Located at 4 Battle Bridge Lane, London SE1 2HR, England, the
Subadviser is a wholly owned subsidiary of Govett & Company Limited, a
corporation listed on the London Stock Exchange. The Govett Group, which manages
or administers investment funds valued at approximately $8.6 billion, maintains
offices in London, Singapore, Jersey (Channel Islands), Sacramento, Raleigh, and
San Francisco.
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<PAGE> 19
ADVISORY AGREEMENTS. The Trust retains the Adviser to manage the investment of
the Fund's assets and to place orders for the purchase and sale of the Fund's
portfolio securities. The Adviser has entered into a sub-advisory agreement (the
"Sub-advisory Agreement") with the Subadviser to assist it in performing its
investment advisory functions. The Subadviser will be primarily responsible for
recommending the allocation of investments among various international markets
and currencies; recommendation and selection of particular securities in the
international markets; and placement of portfolio transactions in the foreign
equity markets. Under an investment advisory agreement between the Adviser and
the Trust (the "Advisory Agreement"), the Trust pays the Adviser a monthly fee
computed on average daily net assets of the Fund at the annual rate of 1.00% of
the Fund's average daily net assets. This fee is higher than that charged by
most other mutual funds but the Fund believes it is justified by the special
international nature of the Fund and is not necessarily higher than the fees
charged by certain mutual funds with investment objectives and policies similar
to those of the Fund. Under the Advisory Agreement, the Trust also reimburses
the Adviser for the cost of the Fund's accounting services, which include
maintaining its financial books and records and calculating its daily net asset
value. Operating expenses paid by the Fund include shareholder service agency
fees, distribution charges, custodial fees, legal and accounting fees, the costs
of reports and proxies to shareholders, trustees' fees, and all other business
expenses not specifically assumed by the Adviser. Advisory (management) fee, and
total operating expense, ratios are shown under the caption "Annual Fund
Operating Expenses and Example" herein. Pursuant to the Sub-advisory Agreement,
the Subadviser receives on an annual basis 50% of the compensation received by
the Adviser.
From time to time as the Adviser, the Subadviser and/or the Distributor may
deem appropriate, they may voluntarily undertake to reduce the Fund's expenses
by reducing the fees payable to them to the extent of, or bearing expenses in
excess of, such limitations as they may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors/trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. Jeff New is primarily responsible for the day-to-day
management of the Fund's investment portfolio with respect to investments in the
United States. Mr. New is Vice President of the Fund. He has been an associate
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<PAGE> 20
portfolio manager with the Adviser since April 1990. Prior to that he was a
securities analyst with Texas Commerce Investment Management Company. Mr. New
has been primarily responsible for managing the Fund's investment portfolio with
respect to investments in the United States since May 13, 1994. The Subadviser
has employed Peter Kysel since September 1994 as Director and Fund Manager. He
is primarily responsible for allocating the Fund's investments between United
States and non-United States equity securities and the day-to-day management of
the Fund's investments in countries other than the United States. Mr. Kysel
began managing the Fund's investment portfolio effective December 21, 1994. Mr.
Kysel was previously a managing director of the investment banking division of
Komercni Bank.
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ALTERNATIVE SALES ARRANGEMENTS
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The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 5.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if they are redeemed within five years of purchase.
Class B shares are subject to an ongoing service fee at an annual rate of up to
0.25% of the Fund's aggregate average daily net assets attributable to the Class
B shares and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
Class B shares enjoy the benefit of permitting all of the investor's dollars to
work from the time the investment is made. The ongoing distribution fee paid by
Class B shares will cause such shares to have a higher expense ratio and to pay
lower dividends than those related to Class A shares. See "Purchase of
Shares -- Class B Shares." Class B shares will automatically convert to Class A
shares six years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "Conversion Feature" herein for discussion
on applicability of the conversion feature to Class B shares.
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<PAGE> 21
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will automatically convert to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the calendar month in which the shares were purchased and will no longer be
subject to the distribution fee. 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 purpose of the conversion feature is to relieve the
holders of the Class B shares and Class C shares that have been outstanding for
a period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares or Class C
shares as the case may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C 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 distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the conversion
of shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years,
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<PAGE> 22
respectively, after the end of the calendar month in which the shareholder's
order to purchase was accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares. In this regard, Class A shares may
be more beneficial to the investor who qualifies for reduced initial sales
charges or purchases at net asset value, as described herein under "Purchase of
Shares -- Class A Shares." For these reasons, the Distributor will reject any
order of $500,000 or more for Class B shares or any order of $1 million or more
for Class C shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.
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<PAGE> 23
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION
OF THE CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH
RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE
INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution Plans."
GENERAL. Dividends paid by the Fund with respect to Class A, Class B and Class
C shares will be calculated in the same manner at the same time on the same day,
except that the distribution fees and any incremental transfer agency costs
relating to Class B or Class C shares will be borne by the respective class. See
"Distributions from the Fund." Shares of the Fund may be exchanged, subject to
certain limitations, for shares of the same class of other mutual funds advised
by the Adviser. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the Investment Company Act
of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.
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PURCHASE OF SHARES
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GENERAL
The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold with an initial sales charge; Class B shares
and Class C shares are sold without an initial sales charge and are subject to a
contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to
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<PAGE> 24
purchase. Contact the Investor Services Department at (800) 421-5666 for further
information and appropriate forms.
Initial investments must be at least $500, and subsequent investments must be
at least $25. Both minimums may be waived by the Distributor for plans involving
periodic investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares may also be purchased by completing the application accompanying
this Prospectus and forwarding the application, through the designated dealer,
to the shareholder service agent, ACCESS Investor Services, Inc., a wholly owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B or
Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share is determined once daily as of the close of trading on the
New York Stock Exchange ("Exchange") (currently 4:00 p.m. New York time) each
day the Exchange is open. Net asset value per share for each class is determined
by dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class, less all liabilities (including
accrued expenses) attributable to such class, by the total number of shares of
the class outstanding. With respect to foreign securities, income is accrued by
the Fund on the ex date or when data becomes available, whichever is later.
Securities listed or traded on a national securities exchange are valued at the
last sale price. Unlisted securities and listed securities for which the last
sale price is not available are valued at the most recent bid price. Options and
futures contracts are valued at the last sale price or if no sales are reported,
at the mean between the bid and asked prices. Short-term investments and other
securities are valued in the manner described in the Statement of Additional
Information.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value plus applicable Class A sales charges after an
order is received by a dealer
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<PAGE> 25
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. Orders received by dealers after the close of the
Exchange are priced based on the next close, provided they are received by the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of dealers to transmit orders received by them to the Distributor
so they will be received prior to such time. Orders of less than $500 are mailed
by the dealer and processed at the offering price next calculated after
acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the higher distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid, and (iii) Class B and Class C shares are subject to a
conversion feature. Each class has different exchange privileges and certain
different shareholder service options available. See "Distribution Plans" and
"Shareholder Services -- Exchange Privilege." The net income attributable to
Class B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by the amount of the distribution fee and incremental
expenses associated with such distribution fees. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling Class A, Class B or Class C shares.
Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund with subsidiaries of The Travelers Inc.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediaries 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 brokers, dealers or financial intermediaries
for certain services or activities which are primarily intended to result in
sales of shares of the Fund. Fees may include payment for travel expenses,
including lodging, incurred in connection with trips
25
<PAGE> 26
taken by invited registered representatives and members of their families to
locations within or outside of the United States for meetings or seminars of a
business nature. 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. 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. The
Distributor may also provide additional compensation on sales made by entities
which have contracted to be an agent for specific transaction processing and
services. All of the foregoing payments are made by the Distributor out of its
own assets. These programs will not change the price an investor will pay for
shares or the amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
TO DEALERS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000........................ 6.10% 5.75% 5.00%
$50,000 but less than $100,000........... 4.99% 4.75% 4.00%
$100,000 but less than $250,000.......... 3.90% 3.75% 3.00%
$250,000 but less than $500,000.......... 2.83% 2.75% 2.25%
$500,000 but less than $1,000,000........ 2.04% 2.00% 1.75%
$1,000,000 and over...................... * * *
-----------------------------------------------------------------------------------
</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 one percent in the event of certain redemptions
within one year of the purchase. The contingent deferred sales charge incurred
upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
one percent on sales to $2 million, plus 0.80% on the next million, plus 0.20%
on the next $2 million and 0.08% on the excess over $5 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. Dealers which are
reallowed all or substantially all of the sales commissions may be deemed to be
underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the
26
<PAGE> 27
reallowance allowable to dealers described herein. Such financial institutions,
other industry professionals and dealers are hereinafter referred to as "Service
Organizations." 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.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund 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 broker,
dealer or financial intermediary or the Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and minor children 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 fiduciary
account, or a "company" as defined in Section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Money Market Fund ("VK Money Market"), Van Kampen American Capital Tax Free
Money Fund ("VK Tax Free"), Van Kampen American Capital Reserve Fund ("Reserve")
and The Govett Funds, Inc.
Volume Discounts. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
Cumulative Purchase Discount. The size of investment shown in the 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.
27
<PAGE> 28
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 preceding table. The
size of investment shown in the preceding table also 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. If the goal is not
achieved within the period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. The
initial purchase must be for an amount equal to at least five percent of the
minimum total purchased amount of the level selected. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provisions, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
Unit Fund Reinvestment Programs. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A shares
of the Fund, other Participating Funds, VK Money Market, VK Tax Free or Reserve
with no minimum initial or subsequent investment requirement, and with a lower
sales charge if the administrator of an investor's unit investment trust program
meets certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all investments made from unit trust
distributions will be one percent of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their securities broker or dealer or the Distributor.
28
<PAGE> 29
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS's processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Investment Advisory Corp. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children 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.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or any combination of
shares of the Fund and shares of other Participating Funds as described
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts,"
during the 13-month period commencing with the first investment pursuant
hereto equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made an amount up to 0.50% of
the amount invested, over a twelve month period following such
transaction.
29
<PAGE> 30
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to one percent for such purchases.
(6) 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.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in
Participating Funds, VK Money Market, VK Tax Free or Reserve. For such
investments the Fund imposes a contingent deferred sales charge of one
percent in the event of redemptions within one year of the purchase other
than redemptions required to make payments to participants under the terms
of the plan. The contingent deferred sales charge incurred upon certain
redemptions is paid to the Distributor in reimbursement for distribution-
related expenses. A commission will be paid to dealers who initiate and
are responsible for such purchases as follows: one percent on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer or financial institution
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.
Service Organizations will be paid a service fee as described herein under
"Distribution Plans" on purchases made as described in (3) through (8) 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.
30
<PAGE> 31
CLASS B SHARES
Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth below charged as a
percentage of the dollar amount subject thereto. The charge is assessed on an
amount equal to the lesser of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions.
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 purchases
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------------------------------------------------------------------
<S> <C>
First.................................................... 5%
Second................................................... 4%
Third.................................................... 3%
Fourth................................................... 2.5%
Fifth.................................................... 1.5%
Sixth.................................................... None
</TABLE>
------------------------------------------------------------------------------
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, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five-year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is
31
<PAGE> 32
subject to a deferred sales charge at a rate of four percent (the applicable
rate in the second year after purchase).
A commission or transaction fee of four percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of one percent. The charge is assessed on an
amount equal to the lesser of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions.
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 second, of shares held for more than one year or shares acquired
pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation, to Service Organizations
that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account, and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." The contingent deferred sales
charge is also waived on redemptions of Class C shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption.
32
<PAGE> 33
See the Statement of Additional Information for further discussion of waiver
provisions.
------------------------------------------------------------------------------
SHAREHOLDER SERVICES
------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of those services.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which the
shares are held by ACCESS. Except as described herein, 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 or Reserve, may receive statements quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized investment dealers or
by mailing a check directly to ACCESS.
SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than two percent of the net asset value of the
issued shares, and bill the party to whom the certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. Unless the shareholder instructs otherwise, the reinvestment
plan is automatic. This instruction may be made by telephone by calling (800)
421-5666 ((800) 772-8889 for the hearing impaired) or in writing to ACCESS. The
investor may, on the initial application or prior to any declaration, instruct
that dividends be paid in cash and capital gains distributions be reinvested at
net asset value, or that both dividends and capital gains distributions be paid
in cash.
33
<PAGE> 34
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, VK Money Market,
VK Tax Free or Reserve.
If a qualified, pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund other than
Van Kampen American Capital Government Target Fund ("Government Target"), may be
exchanged for shares of the same class of any other fund without
34
<PAGE> 35
sales charge, provided that shares of certain Van Kampen American Capital fixed-
income funds may not be exchanged within 30 days of acquisition without Adviser
approval. Shares of Government Target may be exchanged for Class A shares of the
Fund without sales charge. Class A Shares of VK Money Market, VK Tax Free or
Reserve that were not acquired in exchange for Class B or Class C shares of a
Participating Fund may be exchanged for Class A shares of the Fund upon payment
of the excess, if any, of the sales charge rate applicable to the shares being
acquired over the sales charge rate previously paid. Shares of VK Money Market,
VK Tax Free or Reserve acquired through an exchange of Class B or Class C shares
may be exchanged only for the same class of shares of a Participating Fund
without incurring a contingent deferred sales charge. Shares of any
Participating Fund, VK Money Market, VK Tax Free or Reserve may be exchanged for
shares of any other Participating Fund 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.
Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other Van
Kampen American Capital fund that offers such shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares, without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a disposition of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B and
Class C shareholders would remain subject to the contingent deferred sales
charge imposed by the original fund upon their redemption from the Van Kampen
American Capital complex of funds. The contingent deferred sales charge is based
upon the holding period requirements of the original fund.
Since the maximum sales charge rate applicable to purchases of Class A shares
of the Fund is higher than the maximum sales charge rate applicable to the
purchase of Class A shares of Van Kampen American Capital fixed-income funds,
the foregoing exchange privilege may be utilized to reduce the sales charge paid
to purchase Class A shares of the Fund.
Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the exchanged shares, but is carried over and included in the
tax basis of the shares acquired. See the Statement of Additional Information.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS, or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges
35
<PAGE> 36
unless otherwise designated in the application form accompanying this
Prospectus. Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, neither VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. Exchanges are effected at the net asset value per share next
calculated after the request is received in good order with adjustment for any
additional sales charge. See "Purchase of Shares" and "Redemption of Shares." 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 dealer
of record as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In order to establish a systematic withdrawal plan
for the new account or reinvest dividends from the new account into another
fund, however, an exchanging shareholder must file a specific written request.
The Fund reserves the right to reject any order to acquire its shares through
exchange. In addition, the Fund may modify, restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder
Services -- Retirement Plans."
Class B 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
36
<PAGE> 37
shareholder's investment in the Fund at the time the election to participate in
the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred Sales
Charge" and the Statement of Additional Information.
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 this plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon
redemption of shares.
------------------------------------------------------------------------------
REDEMPTION OF SHARES
------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
dealer. Orders received from dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by a 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 dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B and
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more and for certain qualified 401(k) retirement plans. The
contingent deferred sales charge incurred upon redemption is paid to the
Distributor in reimbursement for distribution-related expenses. See "Purchase of
Shares." A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker/dealer; a
credit union; a national
37
<PAGE> 38
securities exchange, registered securities association or clearing agency; a
savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from and be forwarded to Van Kampen American Capital Trust
Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for
information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received. Payment for shares redeemed will be made by check mailed within seven
days after acceptance by ACCESS of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, ACCESS may delay mailing a redemption check
until the purchase check has cleared, usually a period of 15 days. Any taxable
gain or loss will be recognized by the shareholder upon redemption of shares.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record for the account or to
the bank account of record as described below. To establish such privilege, a
shareholder
38
<PAGE> 39
must complete the appropriate section of the application form accompanying this
Prospectus or call the Fund at (800) 421-5666 to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
and the Fund employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. To establish such privilege a shareholder must
complete the appropriate section of the application form accompanying this
Prospectus or call the Fund at (800) 421-5666. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B 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 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
39
<PAGE> 40
indefinite duration." While the Fund does not specifically adopt the balance of
the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of disability before it determines to waive the contingent
deferred sales charge on Class B and Class C shares.
In cases of disability, the contingent deferred sales charge on Class B and
Class C shares will be waived where the 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 initial determination of disability.
This waiver of the contingent deferred sales charge on Class B and Class C
shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the 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 (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.
------------------------------------------------------------------------------
DISTRIBUTION PLANS
------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Trust, and the
shareholders of each class of the Fund have adopted three Distribution Plans
hereinafter referred to as the "Class A Plan," the "Class B Plan" and the "Class
C Plan." Each Distribution Plan is in compliance with the Rules of Fair Practice
of the NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD
Rules limit the annual distribution charges that a mutual fund may impose on a
class of shares. The NASD Rules also limit the aggregate amount which the Fund
may pay for
40
<PAGE> 41
such distribution costs. Under the Class A Plan, the Fund pays a service fee to
the Distributor at an annual rate of up to 0.25% of the Fund's aggregate average
daily net assets attributable to the Class A shares. Under the Class B Plan and
the Class C Plan, the Fund pays a service fee to the Distributor at an annual
rate of up to 0.25% and a distribution fee at an annual rate of up to 0.75% of
the Fund's aggregate average daily net assets attributable to the Class B or
Class C shares to reimburse the Distributor for service fees paid by it to
Service Organizations and for its distribution costs.
The Distributor uses the Class A, Class B and Class C service fee to
compensate Service Organizations for personal services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to four
percent of the purchase price of Class B shares purchased by the clients of
broker-dealers and other Service Organizations and (ii) other distribution
expenses as described in the Statement of Additional Information. Under the
Class C Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class C shares as reimbursement for (i) upfront commissions and
transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares and (ii) other distribution expenses as
described in the Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees determined that there was a reasonable likelihood that such Plans would
benefit the Fund and its shareholders. Information with respect to distribution
and service revenues and expenses is presented to the Trustees each year for
their consideration in connection with their deliberations as to the continuance
of the Distribution Plans. In their review of the Distribution Plans, the
Trustees are asked to take into consideration expenses incurred in connection
with the distribution and servicing of each class of shares separately. The
sales charge and distribution fee, if any, of a particular class will not be
used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
The distribution fee attributable to Class B or Class C shares is designed to
permit an investor to purchase such shares without the assessment of a front-end
41
<PAGE> 42
sales load and at the same time permit the Distributor to compensate Service
Organizations with respect to such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and distribution fee
are the same as those of the initial sales charge with respect to the Class A
shares of the Fund in that in both cases such charges provide for the financing
of the distribution of the Fund's shares.
Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class B
Plan, the balance of $100,000 would be subject to recovery in future fiscal
years from such sources. For the plan year ended June 30, 1995, the unreimbursed
expenses incurred by the Distributor and carried forward were approximately $1.8
million or 2.68% of the Class B shares' average daily net assets and $96,000 or
1.45% of the Class C shares' average daily net assets.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
------------------------------------------------------------------------------
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions.
DIVIDENDS. Dividends from stocks and interest earned from other investments
are the Fund's main source of income. Substantially all of this income, less
expenses, is distributed annually as dividends to shareholders. Unless the
shareholder instructs otherwise, dividends are automatically applied to purchase
additional shares of the Fund at the next determined net asset value. See
"Shareholder Services -- Reinvestment Plan."
42
<PAGE> 43
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher distribution
charges and incremental transfer agency fees applicable to such classes of
shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than their purchase prices. The Fund distributes to shareholders at
least once a year the excess, if any, of its total profits on the sale of
securities during the year over its total losses on the sale of securities,
including capital losses carried forward from prior years under tax laws. As in
the case of income dividends, capital gains distributions are automatically
reinvested in additional shares of the Fund at net asset value. See "Shareholder
Services -- Reinvestment Plan."
Transactions in stock index futures traded on domestic exchanges or boards of
trade will generally give rise to a combination of short-term and long-term
capital gains and losses.
------------------------------------------------------------------------------
TAX STATUS
------------------------------------------------------------------------------
The Fund has qualified and intends to be taxed as a regulated investment
company under the Code. By qualifying as a regulated investment company, the
Fund is not subject to federal income taxes to the extent it distributes its net
investment income and net realized capital gains. Dividends from net investment
income and distributions from any net realized short-term capital gains are
taxable to shareholders as ordinary income. Long-term capital gains constitute
long-term capital gains for federal income tax purposes. All such dividends and
distributions are taxable to the shareholder whether or not reinvested in
shares. However, shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.
Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions.
To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with a
certification of their correct taxpayer identification number.
Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution paid shortly after the purchase of shares
by an investor would represent, in substance, a return of capital to the
shareholder (to the extent it is paid on the shares so purchased) even though
subject to income taxes as discussed herein.
43
<PAGE> 44
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Investors
may be entitled to claim United States 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, and
may file elections with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro rata
portions of such taxes in their United States income tax returns as gross
income, treat such respective pro rata portions as taxes paid by them, and
deduct such respective pro rata portions in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes. The Fund will report annually to its shareholders the amount per
share of such withholding.
Under Code Section 988, foreign currency gains or losses from certain forward
contracts not traded in the interbank market generally are treated as ordinary
income or loss. Such Code Section 988 gains or losses will increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any ordinary dividend
distributions, and any distributions made before the losses were realized but in
the same taxable year would be recharacterized as a return of capital to
shareholders, thereby reducing each shareholder's basis in his or her Fund
shares.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisors for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Fund.
------------------------------------------------------------------------------
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 and for the life of the Fund. Other total return
quotations, aggregate or average, over other time periods may also be included.
44
<PAGE> 45
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 5.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable 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.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated separately for Class A, Class B and Class C shares.
Class A total return figures include the maximum sales charge of 5.75%; Class B
and Class C total return figures include any applicable contingent deferred
sales charge. Because of the differences in sales charges and distribution fees,
the total returns for each of the classes will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. It 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, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. Distribution rate is, therefore, not intended to be a complete measure
of the Fund's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Fund. Distribution rates will be
computed separately for each class of the Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds or with the Dow Jones Industrial Average Index or
Standard &
45
<PAGE> 46
Poor's, or with other global indexes, such as the Morgan Stanley Capital
International World 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 financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Investor's Business
Daily, Kiplinger's Personal Finance Magazine, Money, Mutual Fund Forecaster,
Stanger's Investment Advisor, USA Today, U.S. News & World Report and The Wall
Street Journal. Such comparative performance information will be stated in the
same terms in which the comparative data or indices are stated. Such
advertisements and sales material may also include a yield quotation as of a
current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce Fund
performance. The Fund will include performance data for Class A, Class B and
Class C shares of the Fund in any advertisement or information including
performance data of the Fund. The Fund may also refer to results of top
performing world equity markets as compiled by Morgan Stanley Capital
International or other independent statistical services or to products or
services produced or provided by domestic or foreign companies.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Fund's Annual Report contains additional performance information. A copy
of the Annual Report may be obtained without charge by calling or writing the
Fund at the telephone number and address printed on the cover page of this
Prospectus.
------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
------------------------------------------------------------------------------
The Trust was originally incorporated in the State of Maryland on May 25, 1990
and reorganized on August 31, 1995, under the laws of the state of Delaware as a
business entity commonly known as a "Delaware business trust,"and presently is
authorized to sell two series. These series are Van Kampen American Capital
Global Government Securities Fund and the Fund. Each of these series is
authorized to issue an unlimited number of Class A, Class B and Class C shares
of beneficial interest of $0.01 par value. Other classes of shares may be
established from time to time in accordance with provisions of the Trust's
Declaration of Trust. Shares issued by the Fund are fully paid, non-assessable
and have no preemptive or conversion rights.
46
<PAGE> 47
The Fund currently offers three classes, designated Class A shares, Class B
shares and Class C shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."
The Fund is permitted to issue an unlimited number of classes. Each class of
shares is equal as to earnings, assets and voting privileges, except as noted
above, and each class bears the expenses related to the distribution of its
shares. There are no conversion, preemptive or other subscription rights, except
with respect to the conversion of Class B shares and Class C shares into Class A
shares as described above. In the event of liquidation, each of the shares of
the Fund is entitled to its portion of all of the Fund's net assets after all
debt and expenses of the Fund have been paid. Since Class B shares and Class C
shares pay higher distribution expenses, the liquidation proceeds to Class B
shareholders and Class C shareholders are likely to be lower than to other
shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.
The Trust's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
------------------------------------------------------------------------------
ADDITIONAL INFORMATION
------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Trust with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
An investment in the Fund may not be appropriate for all investors.
The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.
An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.
47
<PAGE> 48
VAN KAMPEN AMERICAN CAPITAL
GLOBAL EQUITY FUND
------------------
2800 Post Oak Boulevard
Houston, TX 77056
------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Boulevard
Houston, TX 77056
Investment Subadviser
JOHN GOVETT & CO. LIMITED
4 Battle Bridge Lane
London SE1 2HR
England
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
EXISTING SHAREHOLDERS-- P.O. Box 418256
FOR INFORMATION ON YOUR Kansas City, MO 64141-9256
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE Custodian
NUMBER--(800) 421-5666
STATE STREET BANK AND
PROSPECTIVE INVESTORS--CALL TRUST COMPANY
YOUR BROKER OR (800) 421-5666 225 West Franklin Street
P.O. Box 1713
DEALERS--FOR DEALER Boston, MA 02105-1713
INFORMATION, SELLING Attn: Van Kampen American Capital Funds
AGREEMENTS, WIRE ORDERS, OR
REDEMPTIONS CALL THE Legal Counsel
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666 O'MELVENY & MYERS
400 South Hope Street
FOR SHAREHOLDER AND DEALER Los Angeles, CA 90071
INQUIRIES THROUGH
TELECOMMUNICATIONS DEVICE Independent Accountants
FOR THE DEAF (TDD)
DIAL (800) 772-8889 PRICE WATERHOUSE LLP
1201 Louisiana
FOR TELEPHONE TRANSACTIONS Suite 2900
DIAL (800) 421-5684 Houston, TX 77002
<PAGE> 49
GLOBAL EQUITY FUND
------------------------------------------------------------------------------
P R O S P E C T U S
SEPTEMBER 1, 1995
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
-------------------------------------------------------------------------------
<PAGE> 50
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL GLOBAL EQUITY FUND
SEPTEMBER 1, 1995
Van Kampen American Capital Global Equity Fund (the "Fund") is a
diversified series of Van Kampen American Capital World Portfolio Series Trust
(the "Trust") an open-end investment company which presently is authorized to
sell shares of two series.
---------------------
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated September 1,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION................................................................... 2
INVESTMENT OBJECTIVE AND POLICIES..................................................... 3
OPTIONS, FUTURES AND RELATED OPTIONS.................................................. 4
REPURCHASE AGREEMENTS................................................................. 9
LOANS OF PORTFOLIO SECURITIES......................................................... 10
INVESTMENT RESTRICTIONS............................................................... 10
TRUSTEES AND EXECUTIVE OFFICERS....................................................... 12
INVESTMENT ADVISORY AGREEMENT......................................................... 16
DISTRIBUTOR........................................................................... 18
DISTRIBUTION PLANS.................................................................... 18
TRANSFER AGENT........................................................................ 20
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 20
DETERMINATION OF NET ASSET VALUE...................................................... 21
PURCHASE AND REDEMPTION OF SHARES..................................................... 22
EXCHANGE PRIVILEGE.................................................................... 26
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES............................................ 26
FUND PERFORMANCE...................................................................... 28
OTHER INFORMATION..................................................................... 29
FINANCIAL STATEMENTS.................................................................. 29
</TABLE>
<PAGE> 51
GENERAL INFORMATION
The Trust was originally incorporated in Maryland on May 25, 1990 and
reorganized under the laws of Delaware on August 31, 1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than seven percent of the common stock of
VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Advantage Capital Corporation, a retail broker-dealer affiliate of the
Distributor, is a wholly owned subsidiary of VK/AC Holding, Inc.
John Govett & Co. Limited (the "Subadviser") is a wholly owned subsidiary
of Govett & Company Limited, a corporation listed on the London Stock Exchange.
VKAC offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight, July 1995. VKAC's roots in money
management extend back to 1926. Today, we manage or supervise more than $50
billion in mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to VKAC in more than 2 million investor accounts. VKAC
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
VKAC equity fund philosophy is to normally remain fully invested and
diversified across many industries to achieve consistent long-term returns.
VKAC uses a four-step investment process designed to attempt to produce
consistently good short-term results, which should help lead to superior
long-term performance.
Fully Invested: Money invested in a VKAC stock fund will normally be fully
invested in the market to attempt to maximize the potential for long-term
returns. The importance of being fully invested can be illustrated by the
following comparison. By missing fewer than four percent of the months during
the past 68 years, the value of one dollar invested in 1926 was $11.57 at the
end of 1994, compared to $810.54 for one dollar that was invested for the entire
period (Source: Micropal, Inc.). During the most recent five-year period
(1990-1994), the average annual total return for stocks, as measured by the
Standard and Poor's 500 Stock Index, a broad-based, unmanaged index, was 8.87
percent. However, the average annual return for the S&P 500 for the same period
excluding the 20 best days for stock market performance, was just 0.67 percent.
Of course, past performance is no guarantee of future results.
Widely Varied: A widely varied portfolio usually reduces risk and increases
relative stability. Since VKAC's goal is consistency, a widely varied portfolio
across industries is emphasized. VKAC stock funds are varied both in terms of
the number of industries and the number of stocks within each industry in which
they invest. Generally, the stock funds invest in 12 broad economic sectors, and
in many individual stocks within each sector.
Clearly Defined: The basic characteristics of VKAC funds are determined by
a pre-defined profile which remains constant over time.
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<PAGE> 52
Blended Investment Style: Market conditions are constantly changing, which
means the stocks that perform well should be expected to change. A rigid
investment style might cause an investor to suffer when certain types of stocks
lose favor with the market. The two most common investment styles are growth,
which emphasizes companies that are projected to experience rapid growth in
earnings, and value, which focuses on companies whose stock is selling for less
than the company's trust worth. At VKAC, our style is blended between growth and
value on a fund-specific basis. The results of our approach are constantly
evaluated and compared to other similar funds. Although past performance is no
guarantee of future results, VKAC remains committed to our belief that this
approach should help maximize potential for long-term returns.
As of August 11, 1995, no one person was known to own beneficially or to
hold of record five percent or more of the outstanding shares of any class of
the Fund except for those listed below:
<TABLE>
<CAPTION>
NATURE NUMBER
OF OF SHARES
NAME AND ADDRESS OF HOLDER OWNERSHIP CLASS HELD PERCENT
-------------------------- ---------- ----- --------- -------
<S> <C> <C> <C> <C>
Van Kampen American Capital Trust Company of record A 1,812,928 35.58%
2800 Post Oak Blvd.
Houston, TX 77056
Van Kampen American Capital Trust Company of record B 1,494,254 26.53%
2800 Post Oak Blvd.
Houston, TX 77056
Smith Barney Inc. of record B 555,103 9.86%
388 Greenwich Street, 11th Floor
New York, NY 10013-2375
Van Kampen American Capital Trust Company of record C 56,501 10.31%
2800 Post Oak Blvd.
Houston, TX 77056
Merrill Lynch Pierce Fenner & Smith Inc. of record C 44,903 8.20%
Mutual Fund Operations
4800 Deer Lake Drive East,
3rd Floor
Jacksonville, FL 32246-6484
PaineWebber Inc. of record C 41,231 7.53%
1000 Harbor Blvd., 6th Floor
Weehawken, NJ 07087-6727
Smith Barney Inc. of record C 120,809 22.05%
388 Greenwich Street, 11th Floor
New York, NY 10013-2375
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete
explanation of the matters disclosed. Readers must also refer to this caption in
the Prospectus for a complete presentation of the matters disclosed below.
The investment objective of the Fund is to provide long-term growth of
capital.
The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or
other securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a
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<PAGE> 53
similar ownership arrangement. Generally, ADRs in registered form, are designed
for use in United States securities markets and EDRs, in bearer form, are
designed for use in European securities markets.
The Fund may write and invest in options, futures contracts and related
options thereon. For further discussion of options, futures and related options
see "Investment Practices" in the Prospectus and "Options, Futures and Related
Options" herein.
OPTIONS, FUTURES AND RELATED OPTIONS
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return or total return than would be
realized on the underlying securities alone. Such returns could be expected to
fluctuate because premiums earned from an option writing program and dividend or
interest income yields on portfolio securities vary as economic and market
conditions change. Actively writing options on portfolio securities is likely to
result in a substantially higher portfolio turnover rate than that of most other
investment companies.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis, which means that, at all times during the
option period, the Fund would own or have the right to acquire securities of the
type that it would be obligated to deliver if any outstanding option were
exercised.
The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in segregated account with its Custodian cash, cash
equivalents or U.S. Government securities in any amount of not less than the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.
The Fund intends to limit its ability to write options such that the
aggregate value of the securities underlying the calls or the obligations
underlying the puts determined as of the date the options are sold shall not
exceed 25% of its net assets.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction", which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a writer of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a writer, but would provide an asset of
equal value to its obligation under the option written. If the Fund is not able
to enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has written, it will be required to maintain the
securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.
Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding and limits it ability to achieve long-term growth of
capital for such period; by writing a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
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<PAGE> 54
Each of the United States exchanges has established limitations governing
the maximum number of call or put options on the same underlying security
(whether or not covered) that may be written by a single investor, whether
acting alone or in concert with others, regardless of whether such options are
written on one or more accounts or through one or more brokers. An exchange may
order the liquidation of positions found to be in violation of those limits and
it may impose other sanctions or restrictions. These position limits may
restrict the number of options the Fund may be able to write.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Conversely, put options could be purchased to protect (i.e., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. Alternatively, put options could be purchased
for capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OPTIONS ON STOCK INDEXES
Options on stock indexes are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash which amount will depend upon the closing
level of the stock index upon which the option is based being greater than (in
the case of a call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference between the
closing price of the index and the exercise price of the option, multiplied by a
specified dollar multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options are currently traded
on The Chicago Board Options Exchange, the American Stock Exchange and other
exchanges. The Fund may write or purchase options which are listed on an
exchange as well as options which are traded over-the-counter.
Gain or loss to the Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an exchange, or it
may let the option expire unexercised.
FOREIGN CURRENCY OPTIONS
The Fund may purchase put and call options on foreign currencies to reduce
the risk of currency exchange fluctuation. Premiums paid for such put and call
options will be limited to no more than five percent of the Fund's net assets at
any given time. Options on foreign currencies operate similarly to options on
5
<PAGE> 55
securities, and are traded primarily in the over-the-counter market, although
options on foreign currencies are traded on United States and foreign exchanges.
Exchange-traded options are expected to be purchased by the Fund from time to
time and over-the-counter options may also be purchased, but only when the
Advisers believe that a liquid secondary market exists for such options,
although there can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Option on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investment generally. See "Investment Practices and Restrictions -- Using
Options, Futures Contracts and Related Options" in the Prospectus.
The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool".
A stock index futures contract is an agreement pursuant to which a party
agrees to take or make delivery of cash equal to a specified dollar amount times
the difference between the stock index value at a specified time and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.
Currently, stock index futures contracts can be purchased with respect to
the Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange
("CME"), the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.
The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the CME and United States commodity exchanges may develop futures and futures
options on other indices of foreign securities. Futures and options on United
States devised index of foreign stocks are also being developed. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign political and economic
developments, and the
6
<PAGE> 56
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale or a futures
contract. Initially, the Fund will be required to deposit with its Custodian in
an account in the broker's name an amount of cash, cash equivalents or liquid
high grade debt securities equal to a percentage (which will normally range
between two and ten percent) of the contract amount. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transaction. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract, which is returned to the
Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, will be made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund has purchased a futures contract and the price
of the underlying security or index has risen, that position will have increased
in value, and the Fund will receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the value of the underlying security or index has declined,
the position would be less valuable, and the Fund would be required to make a
variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract would serve
as a temporary substitute for the purchase of individual securities, which may
be purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provide an alternative to the liquidation of securities positions in the
Fund with attendant transaction costs.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased and/or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities, currency or index upon which the
futures contract is based. If the price of the futures contract moves less than
the price of the securities being hedged, the hedge will not be fully effective.
To compensate for the imperfect correlation, the Fund could buy or sell futures
contracts in a greater (lesser) dollar amount than the dollar amount of
securities being hedged if the historical volatility of the securities being
hedged is greater (lesser) than the historical volatility of the securities,
currency or index underlying the futures contract. It is also possible that the
value of futures contracts held by
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<PAGE> 57
the Fund could decline at the same time as portfolio securities being hedged; if
this occurred, the Fund would lose money on the futures contract in addition to
suffering a decline in value in the portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities, currencies or index
underlying the futures contract due to certain market distortions. First, all
participants in the futures market are subject to margin depository and
maintenance requirements. Rather than meet additional margin depository
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the futures
market and the securities, currencies or index underlying the futures contract.
Second, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions. Due to the possibility of price distortion in
the futures markets and because of the imperfect correlation between the
movements in the futures contracts and movements in the securities or currencies
underlying them, a correct forecast of general market trends by the Advisers may
still not result in a successful hedging transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments on variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Advisers' ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
traders to substantial losses. In such event, and in the event of adverse price
movements, the Fund would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset losses on the
futures contract. However, as described in the Prospectus, there is no guarantee
that the price of the securities being hedged will, in fact, correlate with the
price movements in a futures contract and thus provide an offset to losses on
the futures contract.
CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of such Fund's assets. In
order to minimize leverage in connection with the purchase of futures contracts
by the Fund, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian.
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<PAGE> 58
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts.
Options on futures contracts to be written or purchased by the Fund will be
traded on United States or foreign exchanges or over-the-counter. An option on a
futures contract gives the purchasers the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put), at a specified exercise price
at any time during the option period. As a writer of an option on a futures
contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as it could sell, a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to such Fund. The purchase of call options on
futures contracts would be intended to serve the same purpose as the actual
purchase of the futures contract.
RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above which apply to all options
transactions, there are several special risks relating to options on futures.
The Advisers will not purchase options on futures on any exchange unless in the
Advisers' opinion, a liquid secondary exchange market for such options exists.
Compared to the use of futures, the purchase of options on futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances, such as when there is no movement in the level of the index or in
the price of the underlying security, when the use of an option on a future
would result in a loss to the Fund when the use of a future would not.
ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS
Each of the United States exchanges and boards of trade has established
limitations governing the maximum number of call or put options on the same
underlying security or futures contract (whether or not covered) which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). Option positions of all investment companies advised by the Advisers
are combined for purposes of these limits. An exchange or board of trade may
order the liquidation of positions found to be in violation of these limits and
it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.
REPURCHASE AGREEMENTS
In order to earn interest on funds available for very short-term
investment, the Fund may enter into repurchase agreements with domestic or
foreign banks or broker-dealers deemed to be creditworthy by the Adviser under
guidelines approved by the Trustees. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. Repurchase
agreements are fully collateralized by the underlying debt securities and are
considered to be loans under the Investment Company Act of 1940, as amended
("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 securities unless the seller defaults under its
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<PAGE> 59
repurchase obligation. See "Investment Practices -- Repurchase Agreements" in
the Prospectus for further information.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend portfolio securities to unaffiliated brokers, dealers and
financial institutions provided that cash or U.S. Government securities equal in
value to 100% of the market value of the securities loaned is deposited by the
borrower with the Fund and is marked to market daily. While such securities are
on loan, the borrower is required to pay the Fund any income accruing thereon.
Furthermore, the Fund may invest the cash collateral in portfolio securities
thereby increasing the return to the Fund as well as increasing the market risk
to the Fund. The Fund will not lend its portfolio securities if such loans are
not permitted by the laws or regulations of any state in which its shares are
qualified for sale. However, should the Fund believe that lending securities is
in the best interests of its shareholders, it would consider withdrawing it
shares from sale in any such state.
Loans would be made for short-term purposes and subject to termination by
the Fund in the normal settlement time, currently five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if the borrower
does not default. The Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which cannot be changed
without approval by the holders of a majority of its outstanding shares. Such
majority is defined as the lesser of (i) 67% or more of the voting securities
present at the meeting, if the holders of more than 50% of the outstanding
voting securities 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. Engage in the underwriting of securities of other issuers, except that
the Fund may sell an investment position even though it may be deemed to
be an underwriter under the federal securities laws.
2. Purchase any security (other than obligations of the United States
Government, its agencies, or instrumentalities) if more than 25% of its
total assets (taken at current value) would then be invested in a single
industry.
3. Invest more than five percent of its total assets (taken at current
value) in securities of a single issuer other than the United States
Government, its agencies or instrumentalities, or hold more than ten
percent of the outstanding voting securities of an issuer.
4. Borrow money except temporarily from banks to facilitate payment of
redemption requests and then only in amounts not exceeding 33 1/3% of
its net assets, or pledge more than ten percent of its net assets in
connection with permissible borrowings or purchase additional securities
when money borrowed exceeds five percent of its net assets. Margin
deposits or payments in connection with the writing of options or in
connection with the purchase or sale of forward contracts, futures,
foreign currency futures and related options are not deemed to be a
pledge or other encumbrance.
5. Lend money except through the purchase of (i) United States and foreign
government securities, commercial paper, bankers' acceptances,
certificates of deposit and similar evidences of indebtedness, both
foreign and domestic, and (ii) repurchase agreements; or lend securities
in an amount exceeding 15% of the total assets of the Fund. The purchase
of a portion of an issue of securities described under (i) above
distributed publicly, whether or not the purchase is made on the
original issuance, is not considered the making of a loan.
10
<PAGE> 60
6. Make short sales of securities, unless at the time of the sale it owns
or has the right to acquire an equal amount of such securities; provided
that this prohibition does not apply to the writing of options or the
sale of forward contracts, futures, foreign currency futures or related
options.
7. Purchase securities on margin but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities. The deposit or payment by the Fund of initial or maintenance
margin in connection with forward contracts, futures, foreign currency
futures or related options is not considered the purchase of a security
on margin.
8. Buy or sell real estate or interests in real estate including real
estate limited partnerships, provided that the foregoing prohibition
does not apply to a purchase and sale of publicly traded (i) securities
which are secured by real estate, (ii) securities representing interests
in real estate, and (iii) securities of companies principally engaged in
investing or dealing in real estate.
9. Make investments for the purpose of exercising control or management
although the Fund retains the right to vote securities held by it.
10. Invest in commodities or commodity contracts, except that the Fund may
enter into transactions in options, futures contracts or related options
including foreign currency futures contracts and related options and
forward contracts.
11. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts, forward contracts, forward commitments and other investment
strategies and instruments that would be considered "senior securities"
but for the maintenance by the Fund of a segregated account with its
custodian or some other form of "cover".
In addition to the foregoing fundamental policies which may not be changed
without shareholder approval, the Fund is subject to the following policies
which may be amended by the Trustees and which apply at the time of purchase of
portfolio securities.
1. The Fund may not invest in the securities of other open-end investment
companies, or invest in the securities of closed-end investment
companies except through purchase in the open market in a transaction
involving no commission or profit to a sponsor or dealer (other than the
customary broker's commission) or as part of a merger, consolidation or
other acquisition.
2. The Fund may not invest more than five percent of its net assets in
warrants or rights valued at the lower of cost or market, nor more than
two percent of its net assets in warrants or rights (valued on such
basis) which are not listed on the New York or American Stock Exchanges.
Warrants or rights acquired in units or attached to other securities are
not subject to the foregoing limitation.
3. The Fund may not invest in securities of any company if any officer or
trustee of the Trust or of the Adviser owns more than one-half of one
percent of the outstanding securities of such company, and such officers
and trustees who own more than one-half of one percent own in the
aggregate more than five percent of the outstanding securities of such
issuer.
4. The Fund may not invest in interests in oil, gas, or other mineral
exploration or development programs or invest in oil, gas, or mineral
leases, except that the Fund may acquire securities of public companies
which themselves are engaged in such activities.
5. The Fund may not invest more than five percent of its total assets in
securities of unseasoned issuers which have been in operation directly
or through predecessors for less than three years.
6. The Fund may not purchase or otherwise acquire any security if, as a
result, more than ten percent of its net assets (taken at current value)
would be invested in securities that are illiquid by virtue of the
absence of a readily available market. This policy includes repurchase
agreements maturing in more than seven days and over-the-counter options
held by the Fund and that portion of assets used to cover such options.
This policy does not apply to restricted securities eligible for resale
pursuant to
11
<PAGE> 61
Rule 144A under the Securities Act of 1933 (the "1933 Act") which the
Trustees or the Adviser under Board approved guidelines, may determine
are liquid nor does it apply to other securities, for which,
notwithstanding legal or contractual restrictions on resale, a liquid
market exists.
The Fund has made an undertaking with one state that it will continue to
comply with the disclosure relating to writing options and engaging in future
and related options transactions as described herein. The Fund has made an
undertaking with one state to provide written notification to shareholders of
any change in its investment objective at least 30 days prior to implementing
such change and will waive any fee or charge which may result if the shareholder
decides to redeem his or her account as a result of such change in the
investment objectives.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers and their principal occupations
for the past five years are listed below.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and scientific
1009 Slater Road equipment. A Trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital Funds.
Age: 63
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Radnor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art. Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing. A
Trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A Trustee
of each of the Van Kampen American Capital Funds.
</TABLE>
12
<PAGE> 62
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen American
Capital Funds and Chairman of each Van Kampen American
Capital Fund advised by Van Kampen American Capital
Investment Advisory Corp.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive Vice
President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director, Trustee or Managing General Partner of
each of the Van Kampen American Capital Funds and other
open-end investment companies and closed-end investment
companies advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital. A Director and the Second
Vice President of International Institute of Los Angeles.
A Trustee of each of the Van Kampen American Capital
Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 63 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A Trustee of each of the Van Kampen American Capital
Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 71 Capital Funds and Chairman of the Van Kampen American
Capital Funds advised by the Adviser.
</TABLE>
13
<PAGE> 63
<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, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 56 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940). Mr. Powell is an interested person of
the Adviser and the Trust by reason of his position with the Adviser. Mr.
Sheehan and Mr. Whalen are interested persons of the Adviser and the Trust by
reason of their firms having acted as legal counsel to the Adviser or an
affiliate thereof.
The Trust's officers other than Messrs. McDonnell and Nyberg are located
2800 Post Oak Blvd., Houston, TX 77056. Messrs. McDonnell and Nyberg are located
at One Parkview Plaza, Oakbrook Terrace, IL 60181.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
Age: 42 Secretary and Corporate Secretary of the Adviser.
Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 35 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.
Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser. Director of VK/AC
Holding, Inc. and Van Kampen American
Capital.
Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 49 Treasurer investment companies advised by the
Adviser.
Jeff New................. Vice President Portfolio Manager of the Adviser; formerly
Age: 38 Securities Analyst with Texas Commerce
Investment Management Company.
</TABLE>
14
<PAGE> 64
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
Age: 42 and Secretary of Van Kampen American
Capital. Executive Vice President and a
Director of the Distributor. Executive Vice
President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.
Robert C. Peck, Jr....... Vice President Senior Vice President and Director of the
Age: 48 Adviser.
John R. Reynoldson....... Vice President Senior Investment Vice President of the
Age: 42 Adviser.
Alan T. Sachtleben....... Vice President Executive Vice President and Director of
Age: 53 the Adviser. Executive Vice President of
VK/AC Holding, Inc. and VKAC.
J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.
Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser.
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc. Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company.
Executive Vice President and Director of
ACCESS.
</TABLE>
The Trustees and Officers of the Trust as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto and Woodside served as trustees of the Trust during
its last fiscal year. During the fiscal year ended May 31, 1995, the Trustees
who were not affiliated with the Adviser or its parent received as a group
$9,529 in trustees' fees from the Fund in addition to certain out-of-pocket
expenses. Such Trustees also received compensation for serving as trustees or
directors of other investment companies advised by the Adviser as identified in
the notes to the foregoing table. For legal services rendered during the last
fiscal year, the Fund paid legal fees of $6,380 to the law firm of O'Melveny &
Myers, of which Mr. Sheehan is Of Counsel. The firm also serves as legal counsel
to other Van Kampen American Capital Funds.
15
<PAGE> 65
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as directors or trustees is
set forth below. The compensation shown for the Fund is for the most recent
fiscal year and the total compensation shown for the Fund and other related
mutual Funds is for the calendar year ended December 31, 1994. Mr. Powell is not
compensated for his service as Trustee because of his affiliation with the
Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ACCRUED AND FUND
COMPENSATION AS PART OF FUND COMPLEX PAID TO
NAME OF PERSON FROM REGISTRANT EXPENSES DIRECTORS(1)(5)
-------------- --------------- -------- ---------------
<S> <C> <C> <C>
J. Miles Branagan.................... $1,430 -0- $64,000
Dr. Richard E. Caruso(3)............. $1,385(2) -0- $64,000
Dr. Roger Hilsman.................... $1,470 -0- $66,000
David Rees........................... $1,430 -0- $64,000
Lawrence J. Sheehan.................. $1,495 -0- $67,000
Dr. Fernando Sisto(3)................ $1,835(2) -0- $82,000
William S. Woodside(4)............... $1,285 -0- $18,000
</TABLE>
---------------
(1) Represents 29 investment company portfolios in the fund complex.
(2) Amount reflects deferred compensation of $1,385 and $950 for Messrs. Caruso
and Sisto, respectively.
(3) Messrs. Caruso and Sisto have deferred compensation in the past. The
cumulative deferred compensation paid by the Fund is as follows: Caruso,
$3,924; Sisto, $2,836.
(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, with respect to the second and fourth columns, $565
and $36,000, respectively, was paid by the Adviser directly.
(5) Includes the following amounts for which the various Funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000 (Mr. Woodside was
paid $36,000 directly by the Adviser as discussed in footnote 4 above).
Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $779 and a
meeting fee of $22 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.
INVESTMENT ADVISORY AGREEMENT
The Trust and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Trust 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 programs.
The Adviser has entered into a subadvisory agreement with the Subadviser to
assist it in performing its investment advisory functions (the "Sub-advisory
Agreement"). The Subadviser will be primarily responsible
16
<PAGE> 66
for recommending the allocation of investments among various international
markets and currencies; recommendation and selection of particular securities in
the international markets; and placement of portfolio transactions in the
foreign equity markets. For its services, the Subadviser receives from the
Adviser a fee at the annual rate of 50% of the compensation received by the
Adviser. The Adviser and Subadviser are hereinafter sometimes referred to as the
"Advisers."
The Adviser also furnishes the services of the Trust's President and such
other executive and clerical personnel as are necessary to prepare the various
reports and statements and conduct the Trust's day-to-day operations. The Trust,
however, bears the cost of its accounting services, which include maintaining
its financial books and records. The costs of such accounting services include
the salaries and overhead expenses of the Trust's Treasurer and the personnel
operating under his direction. Charges are allocated among the investment
companies advised or subadvised by the Adviser. A portion of these amounts were
paid to the Adviser or its parent in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Trust. The services provided by the Adviser are at cost. The Trust also pays
shareholder service agency fees, distribution fees, custodian fees, legal and
auditing fees, the costs of reports to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser. The Advisory
Agreement also provides that the Adviser shall not be liable to the Trust for
any actions or omissions if it acted without willful misfeasance, bad faith,
negligence or reckless disregard of its obligations.
Under the Advisory Agreement, the Trust pays to the Adviser, as
compensation for the services rendered, facilities furnished, and expenses paid
by it, a fee payable monthly, computed at the annual rate of 1.00% of average
daily net assets of the Fund.
The Fund's average net assets are determined by taking the average of all
determinations of the net assets during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser will be reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of VK/AC
Holding, Inc. in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of VK/AC Holding, Inc., in
connection with obtaining such commissions, fees, brokerage or similar payments.
The Adviser agrees to use its best efforts to recapture tender solicitation fees
and exchange offer fees for the Trust's benefit and to advise the Trustees of
the Trust of any other commissions, fees, brokerage or similar payments which
may be possible for the Adviser or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with the Fund's
portfolio transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Trust, calculated separately for each series, for any
fiscal year should exceed the most restrictive expense limitation applicable in
the states where the Trust's shares are qualified for sale, the compensation due
the Adviser will be reduced by the amount of such excess and that, if the amount
of such excess exceeds the Adviser's monthly compensation, the Adviser will pay
the Trust an amount sufficient to make up the deficiency, subject to
readjustment during the Trust's fiscal year. Ordinary business expenses do not
include (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreement,
and (4) payments made by the Fund pursuant to the distribution plans (described
below).
The most restrictive applicable limitation is 2 1/2% of the first $30
million, 2% of the next $70 million, and 1 1/2% of the remaining average net
assets.The Advisory Agreement also limits the extent to which the Adviser shall
be liable to the Trust for acts or omissions.
The Advisory Agreement has an initial term of two years and thereafter may
be continued from year to year if specifically approved at least annually (a)(i)
by the Trustees, or (ii) by vote of a majority of the Fund's outstanding voting
securities; and (b) by the 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.
17
<PAGE> 67
For the fiscal years ended May 31, 1993, 1994 and 1995, the Adviser
received $70,621 (net of contractual expense reduction of $49,813), $544,485 and
$1,200,835, respectively, in advisory fees from the Fund. For such periods the
Fund paid $8,546, $27,600 and $28,800, respectively, for accounting services.
Pursuant to the Advisory Agreement and the Sub-advisory Agreement, the
Trust has agreed to indemnify the Adviser and the Adviser has agreed to
indemnify the Subadviser, respectively, against any taxes imposed by the United
Kingdom on the Trust for its investment related activities as contemplated in
each Agreement. Neither the Adviser nor the Subadviser may be indemnified,
however, with respect to any liabilities incurred by such party's 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
Agreements or to the Trust.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the Trust's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
has the exclusive right to distribute shares of the Fund through dealers. The
Distributor's obligation is an agency or "best efforts" arrangement under which
the Distributor is required to take and pay for only such shares of the Funds 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 sales literature and advertising. The
Underwriting Agreement is renewable from year to year if approved (a) by the
Trustees or by a vote of a majority of the Fund's outstanding voting securities,
and (b) by the affirmative vote of a majority of the Trustees who are not
parties to the Underwriting Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Underwriting
Agreement provides that it will terminate if assigned, and that it may be
terminated without penalty by either party on 60 days' written notice. During
the fiscal years ended May 31, 1993, 1994 and 1995, total underwriting
commissions on the sale of shares of the Fund were $37,359, $567,966 and
$399,444, respectively. Of such total, the amount retained by the Distributor
was $3,758, $37,912 and $1,104, respectively. The remainder was reallowed to
dealers. Of such dealer reallowance, $11,793, $87,300 and $43,099, respectively
was received by Advantage Capital Corporation, an affiliated dealer of the
Distributor.
DISTRIBUTION PLANS
The Trust adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan," "Class B Plan" and "Class C
Plan," respectively) to permit the Trust directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").
The Trustees have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and C Plans,
authorized payments by the Fund include payments at an annual rate of up to
0.25% of the net assets of the shares of the respective class to reimburse the
Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to four percent of the purchase price of Class B
shares purchased by the clients of broker-dealers and other Service
Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, (5) advertising and promotion expenses, including conducting
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<PAGE> 68
and organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest expense at the three month LIBOR rate
plus one and one-half percent compounded quarterly on the unreimbursed
distribution expenses. With respect to the Class C Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class C shares to reimburse the Distributor for (1) upfront
commissions and transaction fees of up to 0.75% of the purchase price of Class C
shares purchased by the clients of broker-dealers and other Service
Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, and (5) advertising and promotion
expenses, including conducting and organizing sales seminars, marketing support
salaries and bonuses, and travel-related expenses, and (6) interest expense at
the three month LIBOR rate plus one and one-half percent compounded quarterly on
the unreimbursed distribution expenses. Such reimbursements are subject to the
maximum sales charge limits specified by the NASD for asset-based charges.
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. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements were approved by the Trustees, including a majority of the
Trustees who are not interested persons (as defined in the 1940 Act) of the Fund
and who have no direct or indirect financial interest in the operation of any of
the Plans or in any agreements related to each Plan ("Independent Trustees"). In
approving each Plan in accordance with the requirements of Rule 12b-1, the
Trustees determined that there is a reasonable likelihood that each Plan will
benefit the Trust and its shareholders.
Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, each Plan will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Fund. Any change in any of the Plans that would materially increase the
distribution expenses borne by the Fund requires shareholder approval, voting
separately by class; otherwise, it may be amended by a majority of the Trustees,
including a majority of the Independent Trustees, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. So long as the
Plans are in effect, the selection or nomination of the Independent Trustees is
committed to the discretion of the Independent Trustees.
For the fiscal year ended May 31, 1995, the Fund's aggregate expenses under
the Class A Plan were $136,131 or .25% of the Class A shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for payments made
to Service Organizations for servicing Fund shareholders and for administering
the Class A Plan. For the fiscal year ended May 31, 1995, the Fund's aggregate
expenses under the Class B Plan were $594,069 or 1.00% of the Class B shares'
average daily net assets. Such expenses were paid to reimburse the Distributor
for the following payments: $445,552 for commissions and transaction fees paid
to broker-dealers and other Service Organizations in respect of sales of Class B
shares of the Fund and $148,517 for fees paid to Service Organizations for
servicing Class B shareholders and for administering the Class B Plan. For the
fiscal year ended May 31, 1995, the Fund's aggregate expenses under the Class C
Plan were
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<PAGE> 69
$62,244 or 1.00% of the Class C shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments: $46,683 for
commissions and transaction fees paid to broker-dealers and other Service
Organizations in respect of sales of Class C shares of the Fund and $15,561 for
fees paid to Service Organizations for servicing Class C shareholders and for
administering the Class C Plan.
TRANSFER AGENT
During the fiscal year ended May 31, 1995, ACCESS, shareholder service
agent and dividend distributing agent for the Fund, received fees aggregating
$586,655 for these services. These services are provided at cost plus a profit.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Fund and for the placement of its portfolio business and the negotiation of
the commissions paid on such transactions. It is the policy of the Advisers to
seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Advisers
seek the best security price at the most favorable commission rate. In selecting
broker/dealers and in negotiating commissions, the Advisers consider the firm's
reliability, the quality of its execution services on a continuing basis and its
financial condition. When more than one firm is believed to meet these criteria,
preference may be given to firms which also provide research services to the
Fund or the Advisers. Consistent with the Rules of Fair Practice of the NASD and
subject to seeking best execution and such other policies as the Trustees may
determine, the Advisers may consider sales of shares of the Funds and of the
other Van Kampen American Capital mutual funds as a factor in the selection of
firms to execute portfolio transactions for the Funds.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker who supplies brokerage and research services, a commission for
effecting a securities transaction in excess of the amount of commission another
broker would have charged for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of accounts
and (c) effecting securities transactions and performing functions incidental
thereto (such as clearance, settlement and custody).
Pursuant to provisions of the Advisory Agreement and the Sub-advisory
Agreement, the Trustees have authorized the Advisers to cause the Fund to incur
brokerage commissions in an amount higher than the lowest available rate in
return for research services provided to the Advisers. The Advisers are of the
opinion that the continued receipt of supplemental investment research services
from brokers is essential to its provision of high quality portfolio management
services to the Fund. The Advisers undertake that such higher commissions will
not be paid by the Fund unless (a) the Advisers determine in good faith that the
amount is reasonable in relation to the services in terms of the particular
transaction or in terms of the Advisers' overall responsibilities with respect
to the accounts as to which it exercises investment discretion, (b) such payment
is made in compliance with the provisions of Section 28(e) and other applicable
state and federal laws, and (c) in the opinion of the Advisers, the total
commissions paid by the Fund are reasonable in relation to the expected benefits
to the Fund over the long term. The investment advisory fee paid by the Fund
under the Advisory Agreement is not reduced as a result of the Advisers' receipt
of research services.
The Advisers place portfolio transactions for other advisory accounts,
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Advisers in servicing all of their accounts; not all of such services may be
used by the Advisers in connection with the Fund. In the opinion of the
Advisers, the benefits from research services to
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<PAGE> 70
each of the accounts (including the Fund) managed by the Advisers cannot be
measured separately. Because the volume and nature of the trading activities of
the accounts are not uniform, the amount of commissions in excess of the lowest
available rate paid by each account for brokerage and research services will
vary. However, in the opinion of the Advisers, such costs to the Fund will not
be disproportionate to the benefits received by the Fund on a continuing basis.
The Advisers seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Advisers are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.
The Advisers' brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Trustees who are not interested persons
(as defined in the 1940 Act) of the Advisers. Brokerage commissions paid by the
Fund on portfolio transactions for the fiscal years ended May 31, 1993, 1994 and
1995 totalled $113,537, $587,199 and $937,870, respectively.
During the fiscal year ended May 31, 1995, the Fund paid $937,870 in
brokerage commissions on portfolio transactions. During that same period, the
Fund paid approximately $57,937 in brokerage commissions on transactions
totalling approximately $40,244,483 to brokers selected primarily on the basis
of research services provided to the Adviser.
Prior to December 20, 1994, the Fund placed brokerage transactions with
brokers who were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December
20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the
Adviser. The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction. The Fund paid the following commissions to these brokers
during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
SMITH ROBINSON
BARNEY HUMPHREY
------ ------
<S> <C> <C>
Fiscal Year Ended May 31, 1993.................................... $ 556 $ -0-
Fiscal Year Ended May 31, 1994.................................... $8,315 $1,330
Fiscal Year Ended May 31, 1995.................................... $3,391 $ 154
Fiscal 1995 Percentages:
Commissions with affiliates to total commissions.................. .36% .02%
Value of brokerage transactions with affiliates to total brokerage
transactions.................................................... .48% .01%
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York Time) on each
business day on which the Exchange is open. The Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the Exchange is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place on
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<PAGE> 71
all business days in Japanese markets on certain Saturdays and in various
foreign markets on days which are not business days in New York and on which the
Fund's net asset value is not calculated and on which the Fund does not effect
sales, redemptions and repurchases of its shares. There may be significant
variations in the net asset value of Fund shares on days when net asset value is
not calculated and on which shareholders cannot redeem on account of changes in
prices of stocks traded in foreign stock markets.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and repurchases of its shares, as of the close of the Exchange once
on each day on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the
Trustees.
The net asset value of the Fund is computed by (i) valuing securities
listed or traded on a national securities exchange at the last reported sale
price, or if there has been no sale that day at the last reported bid price,
using prices as of the close of trading on the Exchange, (ii) valuing unlisted
securities for which over-the-counter market quotations are readily available at
the most recent bid price as supplied by the National Association of Securities
Dealers Automated Quotations ("NASDAQ") or by broker/dealers, and (iii) valuing
any securities for which market quotations are not readily available and any
other assets at fair value as determined in good faith by the Trustees. Options
on stocks, options on stock indexes, and stock index futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale or
settlement price as of the close of such exchanges, or, if no sales are
reported, at the mean between the last reported bid and asked prices. Debt
securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis which approximates market value.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the Securities and Exchange Commission ("SEC").
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."
PURCHASE OF SHARES
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized dealers, including Advantage Capital
Corporation.
ALTERNATIVE SALES ARRANGEMENTS
The Fund offers three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the 1933 Act.
INVESTMENTS BY MAIL
A Shareholder Investment Account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to the shareholder service agent,
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<PAGE> 72
ACCESS, at P.O. Box 419319, Kansas City, Missouri 64141-6319. The account is
opened only upon acceptance of the application by ACCESS. The minimum initial
investment of $500 or more, in the form of a check payable to the Fund, must
accompany the application. This minimum may be waived by the Distributor for
plans involving continuing investments. Subsequent investments of $25 or more
may be mailed directly to ACCESS. All such investments are made at the public
offering price of Fund shares next computed following receipt of payment by
ACCESS. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by ACCESS to the investor's dealer of
record, unless another dealer is designated.
In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charges reflected in the sales charge table as shown in
the Prospectus apply to purchases of Class A shares of the Fund where the
aggregate investment is $50,000 or more. For purposes of determining eligibility
for volume discounts, spouses and their minor children are treated as a single
purchaser, as is a director or other fiduciary purchasing for a single fiduciary
account. An aggregate investment includes all shares of the Fund and all shares
of certain other participating Van Kampen American Capital mutual funds
described in the Prospectus (the "Participating Funds"), which have been
previously purchased and are still owned, plus the shares being purchased. The
current offering price is used to determine the value of all such shares. If,
for example, an investor has previously purchased and still holds Class A shares
of the Fund and shares of other Participating Funds having a current offering
price of $25,000, and that person purchases $30,000 of additional Class A Shares
of the Fund, the sales charge applicable to the $30,000 purchase would be 4.75%
of the offering price. The same reduction is applicable to purchases under a
Letter of Intent as described in the next paragraph. THE DEALER MUST NOTIFY THE
DISTRIBUTOR AT THE TIME AN ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY
FOR THE REDUCED CHARGE ON THE BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION
MUST BE MADE IN WRITING WHEN SUCH AN ORDER IS PLACED BY MAIL. The reduced sales
charge will not be applied if such notification is not furnished at the time of
the order. The reduced sales charge will also not be applied should a review of
the records of the Distributor or ACCESS fail to confirm the representations
concerning the investor's holdings.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount," made pursuant to the Letter of Intent and
the value of all shares of such Funds previously purchased and still owned are
also included in determining the applicable quantity discount. A Letter of
Intent permits an investor to establish a total investment goal to be achieved
by any number of investments over a 13-month period. Each investment made during
the period receives the reduced sales charge applicable to the amount
represented by the goal as if it were a single investment. Escrowed shares
totalling five percent of the dollar amount of the Letter of Intent are held by
ACCESS in the name of the shareholder. The effective date of a Letter of Intent
may be back-dated up to 90 days in order that any investments made during this
90-day period, valued at the investor's cost, can become subject to the Letter
of Intent. The Letter of Intent does not obligate the investor to purchase the
indicated amount. In the event the Letter of Intent goal is not achieved within
the 13-month period, the investor is required to pay the difference between
sales charges otherwise applicable to the purchases made during this period and
sales charges actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrow
shares to obtain such difference. If the goal is exceeded in an amount which
qualifies for a lower sales charge, a price adjustment is made by refunding to
the investor in shares of the Fund, the amount of excess sales charges, if any,
paid during the 13-month period.
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<PAGE> 73
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC -- Class A") of one percent is imposed in the event of
certain redemptions within one year of the purchase. If a CDSC -- Class A is
imposed upon redemption, the amount of the CDSC -- Class A will be equal to the
lesser of one percent of the net asset value of the shares at the time of
purchase, or one percent of the net asset value of the shares at the time of
redemption.
The CDSC -- Class A will only be imposed if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one year period prior to the redemption. The CDSC --
Class A will be waived in connection with redemptions by Qualified Purchasers
(e.g., in retirement plans qualified under Section 401(a) of the Code and
deferred compensation plans under Section 457 of the Code) required to obtain
funds to pay distributions to beneficiaries pursuant to the terms of the plans.
Such payments include, but are not limited to, death, disability, retirement, or
separation from service. No CDSC -- Class A will be imposed on exchanges between
funds. For purposes of the CDSC -- Class A, when shares of one fund are
exchanged for shares of another fund, the purchase date for the shares of the
fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC -- Class A rather than a front-end load sales charge. In determining
whether a CDSC -- Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent will apply to the net
asset value privilege. Also, in order to establish an amount of $1,000,000 or
more, a Qualified Purchaser may aggregate shares of Van Kampen American Capital
Reserve Fund, Van Kampen American Capital Money Market Fund and Van Kampen
American Capital Tax Free Money Fund with shares of other participating funds
described as "Participating Funds" in the Prospectus.
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B and Class C shares will be subject to a contingent deferred sales
charge.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
The CDSC -- Class B and C is waived on redemptions of Class B and Class C
shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B 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 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 disability or death, 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.
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<PAGE> 74
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of American Capital
Funds; in such event, as described below, the Fund will "tack" the period for
which the original shares were held onto the holding period of the shares
acquired in the transfer or rollover for purposes of determining what, if any,
CDSC -- Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or disability
of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition,
the charge will be waived on any minimum distribution required to be distributed
in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("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 such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest, with
credit for any CDSC -- Class C paid on the redeemed shares, any portion or all
of his or her redemption proceeds (plus that amount necessary to acquire a
fractional share to round off his or her purchase to the nearest full share) in
shares of the Fund, provided that the reinvestment is effected within 120 days
after such redemption and the shareholder has not previously exercised this
reinvestment privilege with respect to Class C shares of the Fund. Shares
acquired in this manner will be deemed to have the original cost and purchase
date of the redeemed shares for purposes of applying the CDSC -- Class C to
subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
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<PAGE> 75
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." 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.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchange security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the Fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new Fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The Fund's policy is to distribute substantially all of its taxable net
investment income at least annually to shareholders of Class A, Class B and
Class C shares. The per share dividends on Class B and Class C shares will be
lower than the per share dividends on Class A shares as a result of the
distribution fees and higher transfer agency fees applicable to the Class B and
Class C shares. The Fund intends to distribute to shareholders any taxable net
realized capital gains for each class at least annually. Taxable net realized
capital gains are the excess, if any, of the Fund's total profits on the sale of
securities during the year over its total losses on the sale of securities,
including capital losses carried forward from prior years in accordance with the
tax laws. Such capital gains, if any, are distributed at least once a year. All
income dividends and capital gains
26
<PAGE> 76
distributions are reinvested in shares of the Fund at net asset value without
sales charge on the record date, except that any shareholder may otherwise
instruct the shareholder service agent in writing and receive cash. Shareholders
are informed as to the sources of distributions at the time of payment.
The Fund expects to qualify as a regulated investment company ("RIC") under
Sections 851-855 of the Code. This means the Fund must pay all or substantially
all its taxable net investment income and taxable net realized capital gains to
shareholders of Class A, Class B and Class C shares and meet certain
diversification and other requirements. By qualifying as a regulated investment
company, the Fund is not subject to federal income taxes to the extent it
distributes its taxable net investment income and taxable net realized capital
gains. If for any taxable year the Fund does not qualify for the special tax
treatment afforded RIC's, all of its taxable income, including any net realized
capital gains, would be subject to tax at regular corporate rates (without any
deduction for distributions to shareholders).
To the extent the Fund should not distribute to its shareholders during any
calendar year at least 98% of its ordinary taxable (net investment) income for
the twelve months ended December 31, plus 98% of its capital gains net income
for the twelve months ended October 31 of such calendar year the Fund would be
required to pay a four percent excise tax. The Fund intends to distribute
sufficient amounts to avoid liability for the excise tax.
Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. Dividends and
distributions declared payable to shareholders of record after September 30 of
any year and paid before February 1 of the following year, are considered
taxable income to shareholders on the record date even though paid in the next
year.
Distributions from long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held Fund
shares. Such distributions and distributions from short-term capital gains are
not eligible for the dividends received deduction referred to above. Any loss on
the sale of Fund shares held for less than six months is treated as a long-term
capital loss to the extent of any long-term capital gain distribution paid on
such shares, subject to any exception that may be provided by IRS regulations
for losses incurred under certain systematic withdrawal plans. All dividends and
distributions are taxable to the shareholder whether or not reinvested in
shares. Shareholders are notified annually by each Fund as to the federal tax
status of dividends and distributions paid by the Fund unless such amount is
less than $10.00, in which case no notice is provided.
Dividends to shareholders who are non-resident aliens may be subject to a
30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders are urged to consult their own tax adviser concerning
the applicability of the United States withholding tax.
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
The Fund may qualify for and may make the election permitted under Section
853 of the Code so that shareholders will be able to claim a credit or deduction
on their income tax returns for, and will be required to treat as part of the
amounts distributed to them, their pro rata portion of qualified taxes paid by
the Fund to
27
<PAGE> 77
foreign countries (which taxes relate primarily to investment income). The
shareholders of the Fund may claim a foreign tax credit by reason of the Fund's
election under Section 853 of the Code subject to the certain limitations
imposed by Section 904 of the Code. Also under Section 63 of the Code, no
deduction for foreign taxes may be claimed by shareholders who do not itemize
deductions on their federal income tax returns, although any such shareholder
may claim a credit for foreign taxes and in any event will be treated as having
taxable income in respect to the shareholder's pro rata share of foreign taxes
paid by the Fund. It should also be noted that a tax-exempt shareholder, like
other shareholders, will be required to treat as part of the amounts distributed
to it a pro rata portion of the income taxes paid by the Fund to foreign
countries. However, that income will generally be exempt from United States
taxation by virtue of such shareholder's tax-exempt status and such a
shareholder will not be entitled to either a tax credit or a deduction with
respect to such income.
BACK-UP WITHHOLDING
The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% back-up withholding tax is not an additional tax and may be credited against
a taxpayer's regular federal income tax liability.
TAX TREATMENT OF OPTION AND FUTURES TRANSACTIONS
The Code includes special rules applicable to listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other terminations of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60 percent thereof and short-term capital gain or loss to the extent of 40
percent thereof ("60/40 gain or loss"). Such contracts, when held by the Fund at
the end of a fiscal year, generally are required to be treated as sold at market
value on the last day of such fiscal year for federal income tax purposes
("marked-to-market"). Over-the-counter options are not classified as Section
1256 contracts and are not subject to the mark-to-market rule or to 60/40 gain
or loss treatment. Any gains or losses recognized by the Fund from transactions
in over-the-counter options generally constitute short-term capital gains or
losses. If over-the-counter call options written, or over-the-counter put
options purchased, by the Fund are exercised, the gain or loss realized on the
sale of the underlying securities may be either short-term or long-term,
depending on the holding period of the securities. In determining the amount of
gain or loss, the sales proceeds are reduced by the premium paid for
over-the-counter puts or increased by the premium received for over-the-counter
calls.
Certain of the Fund's transactions in options, futures contracts and
options on futures contracts, particularly its hedging transactions, may
constitute "straddles" which are defined in the Code as offsetting positions
with respect to personal property. A straddle in which at least one (but not
all) of the positions are Section 1256 contracts is a "mixed straddle" under the
Code if certain identification requirements are met.
The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and, (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.
28
<PAGE> 78
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.
FUND PERFORMANCE
The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for the one year and the three
years and ten month periods ended May 31, 1995, was -2.57% and 6.80%,
respectively. The Fund's average annual total return (computed in the manner
described in this Prospectus) for Class B shares of the Fund for the one year
and the three years and six and one-half month periods ended May 31, 1995, was
-2.37% and 5.81%, respectively. The Fund's average annual total return for Class
C shares of the Fund for the one year and the twenty-three month period ended
May 31, 1995 was 1.69% and 7.95%. These results are based on historical earnings
and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices. Future results will be affected by changes in the general
level of prices of securities available for purchase and sale by the Fund.
Total return is computed separately for Class A, Class B and Class C
shares.
From time to time the Fund will announce the results of its monthly polls
of U.S. investor intentions -- the Van Kampen American Capital Index of Investor
Intentions and the Van Kampen American Capital Mutual Fund Index -- which polls
measure how Americans plan to use their money.
From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by Van Kampen American Capital in 1994.
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;
and (3) in reports or other communications to shareholders or in advertising
material, illustrate the benefits of compounding at various assumed rates of
return. Such illustrations may be in the form of charts or graphs and will not
be based on historical returns experienced by the Fund.
OTHER INFORMATION
CUSTODY OF ASSETS -- State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 serves as Custodian for the Trust. The custodian has
entered into agreements with foreign sub-custodians approved by the Trustees
pursuant to Rule 17f-5 under the 1940 Act. The Custodian and sub-custodians
generally domestically, and frequently abroad, do not actually hold certificates
for the securities in their custody, but instead have book records with domestic
and foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities.
SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Company, performs an annual audit of
the Fund's financial statements.
29
<PAGE> 79
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual Report to shareholders, including the related Report of Independent
Accountants on the May 31, 1995 financial statements, are included in the
Statement of Additional Information.
The following information is not included in the Annual Report. This
example assumes a purchase of Class A shares of the Fund aggregating less than
$50,000 subject to the schedule of sales charges set forth in the Prospectus at
a price based upon the net asset value of Class A shares of the Fund.
<TABLE>
<CAPTION>
MAY 31,
1995
-------
<S> <C>
Net Asset Value Per Class A Share $11.79
Class A Per Share Sales Charge -- 5.75% of offering price
(6.10% of net asset value per share) $ .72
-------
Class A Per Share Offering Price to the Public $12.51
</TABLE>
30
<PAGE> 80
PORTFOLIO OF INVESTMENTS
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND EQUIVALENTS 97.4%
AUSTRALIA 1.1%
18,000 CRA Limited........................................... $ 240,207
16,000 Lend Lease Corp....................................... 209,150
90,000 Pioneer International, Ltd............................ 211,377
60,000 Renison Goldfields.................................... 185,305
99,000 Tab Corp Holdings, Ltd................................ 215,449
61,000 Western Mining Corp................................... 324,650
------------
Total Australia.................................... 1,386,138
------------
BELGIUM 0.3%9
9,100 GIB................................................... 427,423
------------
BRAZIL 0.4%
40,000 Usiminas, UST, SD, Manufacturing...................... 480,000
------------
CANADA 0.6%
* 7,700 BCE, Inc.............................................. 241,750
*15,000 Canadian Pacific, Ltd................................. 254,636
11,000 Inco, Ltd............................................. 275,080
------------
Total Canada....................................... 771,466
------------
FINLAND 0.8%
20,000 Kymmene Corp.......................................... 558,762
*53,000 Nokian Tyres.......................................... 440,545
------------
Total Finland...................................... 999,307
------------
FRANCE 5.2%
700 Carrefour............................................. 346,085
4,450 Castorama Dubois...................................... 712,143
3,500 Christian Dior........................................ 329,437
5,200 Cie De St. Gobain..................................... 650,851
7,500 Credit Local De France................................ 658,924
2,350 LVMH Moet Hennessy.................................... 446,649
6,400 Lyonnaise Des Eaux, SA................................ 655,286
3,600 Primagaz (Cie Gaz).................................... 638,517
7,800 Societe ELF Aquitaine................................. 630,414
6,675 Societe Generale...................................... 784,344
3,000 TV Francaise (TF1).................................... 279,351
3,600 Union Assur Federa.................................... 426,645
11,600 Union Assur Paris..................................... 325,918
------------
Total France....................................... 6,884,564
------------
GERMANY 3.8%
2,060 Bayer, AG............................................. 497,473
1,800 Bayer Vereinsbank..................................... 522,819
800 Bayerische Motoren Werke.............................. 431,048
560 Ckag Colonia Konzern, AG.............................. 309,064
1,175 Deutsche Bank, AG..................................... 575,320
2,000 Man, AG............................................... 532,513
1,000 Preussag, AG.......................................... 297,177
1,495 Siemens, AG........................................... 710,847
</TABLE>
F-1 See Notes to Financial Statements
<PAGE> 81
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
1,100 Veba, AG.............................................. $ 418,191
900 Wella, AG............................................. 706,856
------------
Total Germany...................................... 5,001,308
------------
HONG KONG 3.9%
133,000 China Light & Power................................... 727,302
215,000 Hong Kong Electric.................................... 764,353
50,000 HSBC Holdings......................................... 649,619
305,000 Hong Kong Land........................................ 631,350
135,000 Hutchison Whampoa..................................... 682,391
*1,920,000 Jilin Chemical Industry............................... 407,069
39,000 Sun Hung Kai Properties............................... 282,342
100,000 Swire Pacific......................................... 772,433
76,000 Wharf Holdings........................................ 249,557
------------
Total Hong Kong.................................... 5,166,416
------------
HUNGARY 0.1%
10,000 Gredeon Richter....................................... 165,000
------------
IRELAND 0.1%
* 3,000 Elan.................................................. 104,625
------------
ISRAEL 0.5%
13,500 ECI Telecom........................................... 227,813
12,500 Teva Pharmaceutical Industrial, Ltd................... 410,937
------------
Total Israel....................................... 638,750
------------
ITALY 1.6%
41,500 Burgo (Cartiere), SPA................................. 281,892
90,000 Danieli & Co.......................................... 280,719
112,800 Fiat SPA.............................................. 444,947
55,900 Rinascente (La)....................................... 315,852
211,700 Telecom Italia........................................ 554,560
33,000 Sirti, SPA............................................ 253,104
------------
Total Italy........................................ 2,131,074
------------
JAPAN 16.0%
50,000 Ajinomoto Co., Inc.................................... 567,208
20,000 Amada, Co............................................. 198,523
13,000 Bank of Tokyo......................................... 230,428
*10,000 Barclays de Zoete Nikkei Warrants..................... 10,000
*40,000 Dainippon Screen Manufacturing Co..................... 238,700
*100,000 Denki Kagaku Kogyo.................................... 388,774
114 East Japan Railway.................................... 587,344
* 1,000 Ebara Corp............................................ 38,208
32,000 Fuji Bank............................................. 733,589
15,000 Fuji Photo Film Co.................................... 359,823
82,000 Hitachi............................................... 791,657
15,000 ICOM Incorporated..................................... 177,253
35,000 Isetan Co............................................. 471,492
</TABLE>
F-2 See Notes to Financial Statements
<PAGE> 82
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
* 60,000 Isuzu Motors.......................................... $ 245,318
7,000 Ito Yokado Co......................................... 370,576
* 60,000 Japan Air Lines Co.................................... 416,898
40,000 Kitano Construction Co................................ 293,530
* 100,000 Kobe Steel............................................ 280,059
25,000 Komatsu............................................... 194,683
70,000 Kumagai Gumi Co....................................... 330,872
10,000 Maezawa Industries.................................... 226,883
130,000 Marubeni Corp......................................... 692,821
9,000 Maruichi Steel Tube................................... 186,115
50,000 Matsushita Industries................................. 774,003
69,000 Mitsubishi Construction............................... 371,805
70,000 Mitsubishi Estate..................................... 784,993
80,000 Mitsubishi Heavy Industries........................... 549,247
45,000 Mitsubishi Trust & Banking Corp....................... 728,508
60,000 NEC Corp.............................................. 638,109
50,000 New Oji Paper Co...................................... 520,532
12,000 Nikkodo Co............................................ 83,805
7,500 Nintendo Co........................................... 451,994
16,000 Nippon Hodo Co........................................ 291,167
100 Nippon Telephone & Telegraph Corp..................... 827,179
50,000 Nippon Yusen KK....................................... 297,784
16,000 Nishimatsu Construction............................... 185,099
* 80,000 Nissan Diesel Motor Co................................ 374,358
* 250,000 NKK Corp.............................................. 629,247
20,000 Nomura Securities..................................... 359,232
40,000 Obayashi Corp......................................... 304,874
35,000 Omron Corp............................................ 653,471
35,000 Onward Kashiyama...................................... 479,764
25,000 Sanwa Bank............................................ 534,712
20,000 Shin Etsu Chemical Co................................. 359,232
60,000 Sumitomo Osaka Corp................................... 249,572
12,000 TDK Corp.............................................. 541,684
25,000 Tokio Marine & Fire Insurance Co...................... 286,558
7,000 Tokyo Electron........................................ 225,820
18,000 Tokyu Corp............................................ 116,561
75,000 Tokyu Department Store................................ 451,994
40,000 Toshiba Corp.......................................... 251,935
* 20,000 Toyota Motor Corp..................................... 387,592
10,000 Yamanouchi Pharmarcy.................................. 223,338
------------
Total Japan........................................ 20,964,923
------------
</TABLE>
F-3 See Notes to Financial Statements
<PAGE> 83
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIA 1.0%
115,000 Commerce Asset Holding................................ $ 620,613
123,000 DCB Holdings Berhad................................... 369,324
* 30,750 DCB Holdings Berhad, Warrants (expiring 12/99)........ 35,186
52,000 Resorts World BDH..................................... 339,704
------------
Total Malaysia..................................... 1,364,827
------------
MEXICO 0.0%
10,010 Grupo Industria Maseca................................ 6,690
------------
NETHERLANDS 4.7%
11,014 ABN Amro Holdings NV, Rights.......................... 416,385
4,051 Aegon, NV............................................. 326,784
65,000 Elsevier, NV.......................................... 751,991
10,000 KLM................................................... 312,935
12,609 International Nederlanden Group....................... 683,140
18,000 Kon PTT Nederland..................................... 650,904
27,500 Philips Electronic.................................... 1,095,271
6,850 Royal Dutch Petroleum................................. 858,788
3,900 Unilever NV........................................... 490,644
5,305 Ver Ned Uitgevers..................................... 630,174
------------
Total Netherlands.................................. 6,217,016
------------
NORWAY 0.6%
12,000 Kvaerner, AS.......................................... 502,668
21,000 Unitor, Als........................................... 309,389
------------
Total Norway....................................... 812,057
------------
PHILIPPINES 0.1%
2,500 Philippine Long Distance Telephone.................... 179,688
------------
PORTUGAL 0.2%
* 12,000 Investec Consultant................................... 224,156
------------
SINGAPORE 1.5%
66,000 Cycle & Carriage...................................... 658,578
113,000 Overseas Union Bank................................... 721,967
66,000 Singapore Airlines.................................... 630,151
------------
Total Singapore.................................... 2,010,696
------------
SOUTH KOREA 0.6%
16,374 Samsung Electronic Co................................. 851,448
------------
SPAIN 0.8%
14,400 Banco Santander, SA................................... 544,595
* 37,700 Uralita............................................... 452,677
------------
Total Spain........................................ 997,272
------------
SWEDEN 2.7%
22,500 Astra, AB, Series B................................... 645,529
9,300 Ericsson (LM) Telephone............................... 665,463
10,600 Electrolux, AB........................................ 489,764
18,000 Hoganas, AG........................................... 304,211
</TABLE>
F-4 See Notes to Financial Statements
<PAGE> 84
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
15,000 SKF, AB............................................... $ 292,354
14,400 Skanska, AB, Series B................................. 325,801
7,000 Stora Kopparbergs..................................... 439,826
13,400 Svedala Industrial.................................... 368,925
------------
Total Sweden....................................... 3,531,873
------------
SWITZERLAND 4.1%
* 1,500 Adia, SA.............................................. 291,899
240 Baloise Holdings...................................... 514,359
1,000 CS Holdings........................................... 467,210
1,225 Ciba Geigy, AG........................................ 869,524
750 Nestle, SA............................................ 757,394
400 Publicitas Holdings................................... 408,058
140 Roche Holdings, AG.................................... 862,323
1,000 Alusuisse Lonza Holdings.............................. 589,799
650 Schw Bankverein....................................... 232,362
200 SGS Holding........................................... 346,717
------------
Total Switzerland.................................. 5,339,645
------------
THAILAND 1.3%
90,000 National Financial & Securities....................... 441,248
11,000 Siam Cement Co........................................ 705,105
* 135,000 Telecomasia........................................... 489,567
------------
Total Thailand..................................... 1,635,920
------------
TURKEY 0.8%
308,000 Cimentas.............................................. 232,385
870,000 Esem Sport............................................ 242,368
1,670,000 KOC Yatirim........................................... 562,159
------------
Total Turkey....................................... 1,036,912
------------
UNITED KINGDOM 13.1%
80,000 BAA................................................... 616,166
130,000 Bank of Ireland....................................... 716,373
75,000 Barclay's............................................. 803,954
50,000 BOC Group............................................. 632,841
1,900 British Petroleum, ADR................................ 162,213
147,000 British Petroleum Co., PLC............................ 1,036,494
40,000 British Telecom....................................... 250,913
164,000 Cowie Group, PLC...................................... 726,632
77,000 CRH................................................... 490,345
70,000 Croda International................................... 393,521
20,000 De La Rue............................................. 294,743
25,000 Etam.................................................. 84,961
48,000 Eurotherm............................................. 341,496
200,000 FKI................................................... 524,059
12,600 General Accident...................................... 123,759
</TABLE>
F-5 See Notes to Financial Statements
<PAGE> 85
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
10,000 Glaxo Wellcome........................................ $ 115,293
93,500 Granada Group......................................... 877,537
165,000 Hanson, PLC, ADR...................................... 627,561
24,000 Inchcape.............................................. 121,963
17,000 London Electricity.................................... 174,131
150,000 MAI................................................... 633,635
40,000 Marks & Spencer....................................... 263,618
40,000 National Westminster.................................. 342,385
125,000 Next, PLC............................................. 666,984
37,500 Reed International.................................... 520,486
88,000 Reuters Holdings, PLC, ADR............................ 658,218
15,000 RMC Group............................................. 262,863
49,000 Sainsbury............................................. 350,167
260,000 Senior Engineering.................................... 367,477
49,000 Severn Trent.......................................... 446,268
15,000 Shell Transportation & Trading........................ 184,135
50,000 Smithkline Beecham.................................... 403,764
17,000 Southern Electric..................................... 177,100
100,000 Standard Chartered.................................... 558,202
130,000 Storehouse............................................ 551,215
75,000 Tesco................................................. 352,549
22,000 TSB Group............................................. 88,391
18,000 Unilever.............................................. 349,452
197,000 Vodafone Group........................................ 647,594
50,000 Wessex Water.......................................... 242,179
------------
Total United Kingdom............................... 17,181,637
------------
UNITED STATES 31.5%
4,300 Abbott Laboratories................................... 172,000
* 5,100 ALC Communications Corp............................... 221,850
2,700 Allied-Signal, Inc.................................... 109,013
1,700 Aluminum Co. America.................................. 79,050
9,800 American General Corp................................. 338,100
4,100 American Home Products Corp........................... 301,862
4,300 American International Group, Inc..................... 489,125
4,900 Amgen, Inc............................................ 355,250
4,300 Amoco Corp............................................ 294,013
* 3,800 AMR Corp.............................................. 259,350
4,300 Apache Corp........................................... 124,700
5,800 Applied Materials, Inc................................ 446,600
3,400 Ashland, Inc.......................................... 126,225
3,000 AT & T Corp........................................... 152,250
* 3,200 Atmel Corp............................................ 140,800
</TABLE>
F-6 See Notes to Financial Statements
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
10,300 Baker Hughes, Inc..................................... $ 231,750
7,000 Bank of Boston Corp................................... 255,500
2,400 BankAmerica Corp...................................... 125,400
6,000 Baxter International, Inc............................. 209,250
3,800 BayBanks, Inc......................................... 275,500
6,600 Bemis, Inc............................................ 188,100
5,000 Black & Decker Corp................................... 165,000
* 15,300 BMC Software, Inc..................................... 983,025
6,800 Bowater, Inc.......................................... 266,900
8,100 Browning Ferris Industries, Inc....................... 288,562
2,300 Capital Cities--ABC, Inc.............................. 221,950
* 9,600 Cellular Communications, Inc., Class A................ 445,200
6,600 Chemical Banking Corp................................. 304,425
* 13,300 Chips & Technologies, Inc............................. 128,013
* 7,700 Cisco Systems, Inc.................................... 336,875
6,000 Citicorp.............................................. 321,000
2,600 Clorox Co............................................. 155,675
4,900 Colgate-Palmolive, Co................................. 377,300
6,400 Columbia/HCA Healthcare Corp.......................... 261,600
* 13,900 Community Health System, Inc.......................... 489,975
* 15,000 Compaq Computer Corp.................................. 586,875
6,400 Conagra, Inc.......................................... 213,600
* 1,500 Cordis Corp........................................... 103,500
* 10,600 Cox Communications, Inc., Class A..................... 172,250
2,100 CPC International, Inc................................ 127,575
2,200 Crestar Financial Corp................................ 101,200
* 3,000 Dell Computer Corp.................................... 151,125
7,700 Disney (Walt) Co...................................... 428,313
3,000 Dole Food, Inc........................................ 88,500
11,075 Dollar General Corp................................... 314,253
* 5,600 DSC Communications Corp............................... 207,200
5,700 Du Pont (E.I.) de Nemours & Co., Inc.................. 386,887
1,900 Eastman Chemical Co................................... 114,000
* 11,500 Eckerd Corp........................................... 372,312
* 5,700 Evergreen Media Co.................................... 119,700
4,300 Exxon Corp............................................ 306,913
6,600 Federal Home Loan Mortgage Corp....................... 449,625
4,100 Federal National Mortgage Association................. 381,300
3,200 First Chicago Corp.................................... 183,600
5,300 FPL Group, Inc........................................ 208,025
* 10,000 FTP Software, Inc..................................... 213,750
</TABLE>
F-7 See Notes to Financial Statements
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
* 3,500 Genentech, Inc........................................ $ 169,750
5,100 General Electric Co................................... 295,800
* 6,400 General Instrument Corp............................... 197,600
3,600 Grace (W.R.) & Co..................................... 231,300
5,100 Green Tree Financial Corp............................. 222,488
6,300 Greenfield Industries, Inc............................ 182,700
* 5,100 Health Management Association, Inc., Class A.......... 139,612
* 4,900 Healthcare Compare Corp............................... 153,125
* 4,700 Healthcare & Retirement Corp.......................... 138,650
3,200 Hercules, Inc......................................... 168,000
2,600 Hewlett-Packard Co.................................... 171,925
5,600 Horizon Healthcare Corp............................... 102,200
6,200 Humana, Inc........................................... 130,975
4,300 Illinois Tool Works, Inc.............................. 213,925
6,600 Illinois Central Corp................................. 233,475
* 6,800 Integrated Device Technology, Inc..................... 295,800
* 5,300 Integrated Health Services, Inc....................... 176,887
5,800 Intel Corp............................................ 651,050
2,600 International Paper Co................................ 204,425
6,400 International Business Machines Corp.................. 596,800
* 8,800 International Rectifier Corp.......................... 236,500
9,400 James River Corp...................................... 253,800
113,200 Jardine Matheson...................................... 888,620
5,100 Johnson & Johnson..................................... 337,875
4,700 Kennametal, Inc....................................... 152,750
* 2,300 KLA Instruments Corp.................................. 160,425
* 7,700 Kroger Co............................................. 200,200
* 5,800 LAM Research Corp..................................... 332,050
5,100 Limited, Inc.......................................... 113,475
* 14,300 Lincare Holdings, Inc................................. 380,737
2,600 Linear Technology Corp................................ 159,250
3,160 Lockheed Martin Corp.................................. 188,020
* 5,100 LSI Logic Corp........................................ 342,975
8,500 Marriott International, Inc........................... 287,937
6,800 McDonald's Corp....................................... 257,550
9,800 Merck & Co. Inc....................................... 461,825
3,400 Michael's Stores, Inc................................. 76,925
8,400 Micron Technology, Inc................................ 374,850
* 1,900 Microsoft Corp........................................ 160,906
4,700 Midlantic Corp........................................ 178,013
* 11,300 Mirage Resorts, Inc................................... 337,587
2,200 Mobil Corp............................................ 220,825
</TABLE>
F-8 See Notes to Financial Statements
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
95,000 MTC Electronic Technologies, Ltd...................... $ 237,500
12,000 Mylan Laboratories, Inc............................... 343,500
* 6,800 National Semiconductor Corp........................... 170,000
2,800 NationsBank Corp...................................... 158,550
4,300 Nautica Enterprises, Inc.............................. 129,000
* 3,800 Nine West Group, Inc.................................. 132,525
6,200 NIPSCO Industries, Inc................................ 213,900
5,800 Omnicom Group, Inc.................................... 334,225
* 6,800 Oracle System Corp.................................... 236,300
3,200 Pacificare Health System Inc., Class B................ 212,000
7,700 Pacificorp............................................ 152,075
17,100 Panhandle Eastern Corp................................ 429,638
10,500 Pepsico, Inc.......................................... 514,500
10,900 Philip Morris Companies, Inc.......................... 794,337
14,900 Philips Electronics, Inc.............................. 597,862
6,400 Pinnacle West Capital Corp............................ 147,200
17,500 Praxair, Inc.......................................... 435,312
5,100 Procter & Gamble Co................................... 366,562
5,200 Providian Corp........................................ 189,150
10,700 Public Service Co., New Mexico........................ 152,475
6,000 Reliastar Financial Corp.............................. 222,750
7,500 RJR Nabisco Holdings Corp., Class A................... 195,937
* 9,000 Safeway Inc........................................... 328,500
4,500 Sara Lee Corp......................................... 125,437
5,300 Schering-Plough Corp.................................. 417,375
2,100 Schlumberger Limited.................................. 136,500
5,600 Scott Paper Co........................................ 242,900
3,200 Sears Roebuck & Co.................................... 180,400
21,400 Service Corp. International........................... 612,575
* 5,100 Silicon Graphics, Inc................................. 198,263
* 13,000 Smith International, Inc.............................. 232,375
6,100 St. Paul Companies, Inc............................... 310,338
* 11,500 Sun Healthcare Group, Inc............................. 191,187
* 3,800 Sun Microsystems, Inc................................. 171,000
* 12,800 Symantec Corp......................................... 294,400
4,100 Talbots, Inc.......................................... 130,175
* 13,700 Tele-Communications Inc., Class A..................... 289,413
* 3,400 Tellabs, Inc.......................................... 112,200
* 3,400 Teradyne, Inc......................................... 184,025
4,500 Texaco Inc............................................ 308,250
4,500 Texas Instruments, Inc................................ 520,313
3,400 Thermo Fibertek, Inc.................................. 60,775
</TABLE>
F-9 See Notes to Financial Statements
<PAGE> 89
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
--------------------------------------------------------------------------------
<S> <C> <C>
* 4,100 3Com Corp. ........................................... $ 262,400
10,500 TIG Holdings, Inc..................................... 246,750
4,300 Time Warner, Inc...................................... 170,388
* 8,300 United Waste Systems, Inc............................. 258,856
11,100 USX-Marathon Group.................................... 220,613
* 4,300 Varity Corp........................................... 185,437
* 4,000 Viacom, Inc., Class B................................. 186,500
* 26,700 VLSI Technology, Inc.................................. 695,869
2,100 Walgreen Co........................................... 101,063
22,200 Wal-Mart Store, Inc................................... 555,000
2,600 Warner Lambert Co..................................... 215,475
* 6,000 Watson Pharmaceuticals, Inc........................... 220,500
800 Wells Fargo & Company................................. 147,200
10,900 Whitman Corp.......................................... 197,563
12,800 WMX Technologies, Inc................................. 348,800
* 12,900 WorldComm, Inc. Georgia............................... 335,400
------------
TOTAL UNITED STATES................................ 41,410,786
------------
TOTAL COMMON STOCKS AND EQUIVALENTS
(Cost $118,646,263).............................. 127,921,617
</TABLE> ------------
<TABLE>
<CAPTION>
Principal
Amount CONVERTIBLE CORPORATE OBLIGATION 1.1%
---------
<S> <C> <C>
$ 290,000 Acer, Inc., 4.00%, 6/10/01............................ 797,500
400,000 United Micro Elect, 1.25%, 06/08/04................... 680,000
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS ------------
(Cost $1,461,425)................................... 1,477,500
------------
REPURCHASE AGREEMENT 0.4%
560,000 SBC Capital Markets, Inc., dated 5/31/95, 6.15%,
due 6/1/95 (collateralized by U.S. Government
obligations in a pooled cash account) repurchase
proceeds $560,096 (Cost $560,000)................... 560,000
------------
TOTAL INVESTMENTS (Cost $120,667,688) 98.9%.................... 129,959,117
OTHER ASSETS AND LIABILITIES, NET 1.1%......................... 1,405,896
------------
NET ASSETS 100%................................................ $131,365,013
============
</TABLE>
*Non-income producing security
F-10 See Notes to Financial Statements
<PAGE> 90
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $120,667,688).................. $129,959,117
Foreign currency, at market value (Cost $1,888,407)............... 1,895,265
Receivable for investments sold................................... 3,647,440
Receivable for Fund shares sold................................... 764,612
Interest and dividends receivable................................. 460,962
Unrealized appreciation of forward currency exchange contracts.... 62,605
Other assets...................................................... 37,439
------------
TOTAL ASSETS............................................... 136,827,440
------------
LIABILITIES
Payable for investments purchased................................. 4,106,246
Payable for Fund shares redeemed.................................. 460,867
Bank overdraft.................................................... 446,802
Due to Distributor................................................ 108,623
Due to Adviser.................................................... 108,595
Due to shareholder service agent.................................. 62,725
Deferred directors' fees.......................................... 6,760
Accrued expenses and other payables............................... 161,809
------------
TOTAL LIABILITIES.......................................... 5,462,427
------------
NET ASSETS, equivalent to $11.79 per share for Class A,
$11.50 per share for Class B and $11.61 per share
for Class C shares.............................................. $131,365,013
============
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 5,094,280 Class A, 5,624,671 Class B
and 571,734 Class C shares outstanding.......................... $ 11,291
Capital surplus................................................... 125,802,905
Accumulated net realized loss on securities....................... (3,732,923)
Net unrealized appreciation (depreciation) of securities
Investments..................................................... 9,291,429
Forward currency exchange contracts............................. 62,605
Foreign currency................................................ 6,858
Other foreign denominated assets and liabilities................ (7,787)
Accumulated net investment loss................................... (69,365)
------------
NET ASSETS........................................................ $131,365,013
============
</TABLE>
F-11 See Notes to Financial Statements
<PAGE> 91
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of $218,672 of foreign taxes withheld
at source)...................................................... $1,888,505
Interest.......................................................... 444,043
----------
Total income............................................... 2,332,548
----------
EXPENSES
Management fees................................................... 1,200,835
Shareholder service agent's fees and expenses..................... 684,374
Accounting services............................................... 28,800
Service fees--Class A............................................. 136,131
Distribution and service fees--Class B............................ 594,069
Distribution and service fees--Class C............................ 62,244
Directors' fees and expenses...................................... 11,154
Audit fees........................................................ 81,001
Custodian fees.................................................... 264,559
Legal fees........................................................ 6,380
Reports to shareholders........................................... 68,988
Registration and filing fees...................................... 94,730
Organization expenses............................................. 14,539
Miscellaneous..................................................... 3,603
----------
Total expenses............................................. 3,251,407
----------
Net investment loss........................................ (918,859)
==========
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments................................................ (1,724,952)
Foreign currency and forward currency exchange contracts... 71,588
Net unrealized appreciation (depreciation) of securities
during the period
Investments................................................ 5,977,159
Foreign currency........................................... 3,908
Forward currency exchange contracts........................ 155,303
Other foreign denominated assets and liabilities........... (9,262)
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... 4,473,744
==========
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $3,554,885
==========
</TABLE>
F-12 See Notes to Financial Statements
<PAGE> 92
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended May 31
------------------------------
1995 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.................................................. $ 95,717,344 $ 19,645,729
------------ ------------
Operations
Net investment loss............................................................ (918,859) (456,521)
Net realized gain (loss) on securities......................................... (1,653,364) 2,131,835
Net unrealized appreciation of securities during the period.................... 6,127,108 1,503,543
------------ ------------
Increase in net assets resulting from operations............................. 3,554,885 3,178,857
------------ ------------
Distributions to shareholders from
Net realized gain on securities
Class A...................................................................... -- (92,844)
Class B...................................................................... -- (104,235)
Class C...................................................................... -- (8,409)
------------ ------------
-- (205,488)
------------ ------------
Excess of book-basis net realized gain on securities
Class A...................................................................... (1,311,980) --
Class B...................................................................... (1,438,472) --
Class C...................................................................... (155,182) --
------------ ------------
(2,905,634) --
------------ ------------
Total distributions.......................................................... (2,905,634) (205,488)
------------ ------------
Capital transactions
Proceeds from shares sold
Class A.................................................................... 42,797,541 41,722,355
Class B.................................................................... 29,086,706 47,632,240
Class C.................................................................... 4,030,850 5,489,462
------------ ------------
75,915,097 94,844,057
------------ ------------
Proceeds from shares issued for distributions reinvested
Class A.................................................................... 1,240,023 84,865
Class B.................................................................... 1,341,370 98,060
Class C.................................................................... 131,350 7,850
------------ ------------
2,712,743 190,775
------------ ------------
Cost of shares redeemed
Class A.................................................................... (26,555,840) (14,329,235)
Class B.................................................................... (14,514,920) (7,126,354)
Class C.................................................................... (2,558,662) (480,997)
------------ ------------
(43,629,422) (21,936,586)
------------ ------------
Increase in net assets resulting from capital transactions................. 34,998,418 73,098,246
------------ ------------
INCREASE IN NET ASSETS........................................................... 35,647,669 76,071,615
------------ ------------
NET ASSETS, end of period........................................................ $131,365,013 $ 95,717,344
============ ============
</TABLE>
F-13 See Notes to Financial Statements
<PAGE> 93
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
-------------------------------------------
Aug. 5
Year Ended May 31 1991(1) to
------------------------------ May 31,
1995(2) 1994 1993(2) 1993(2)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................................... $11.67 $10.76 $10.44 $ 9.33
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income...................................................... .23 .26 .235 .21
Expenses............................................................... (.27) (.32) (.325) (.185)
Expense reimbursement(3)............................................... - - .035 -
------ ------ ------ ------
Net investment income (loss)............................................. (.04) (.06) (.055) .025
Net realized and unrealized gain on securities........................... .42 1.0125 .7775 1.145
------ ------ ------ ------
Total from investment operations......................................... .38 .9525 .7225 1.17
------ ------ ------ ------
DISTRIBUTIONS FROM
Net realized gains on securities....................................... - (.0425) (.4025) (.06)
------ ------ ------ ------
Excess of book-basis net realized gain on securities................... (.26) - - -
------ ------ ------ ------
Total distributions...................................................... (.26) (.0425) (.4025) (.06)
------ ------ ------ ------
Net asset value, end of period........................................... $11.79 $11.67 $10.76 $10.44
====== ====== ====== ======
TOTAL RETURN (4)......................................................... 3.36% 9.17% 7.13% 12.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)..................................... $60.1 $41.8 $12.7 $8.4
Average net assets (millions)............................................ $54.5 $25.8 $9.2 $6.2
Ratios to average net assets (annualized)(3)
Expenses............................................................... 2.29% 2.46% 2.93% 2.07%
Expenses, without expense reimbursement................................ - - 3.28% -
Net investment income.................................................. (.35%) (.46%) (.57%) .29%
Net investment income, without expense reimbursement................... - - (.92%) -
Portfolio turnover rate.................................................. 120% 116% 120% 135%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
F-14 See Notes to Financial Statements
<PAGE> 94
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Class C(2)
------------------------------------------------ -----------------------
Novem-
ber 15, Year June 21,
Year Ended May 31 1991(1) to Ended 1993(1) to
-------------------------------- May 31, May 31, May 31,
1995(2) 1994 1993(2) 1992(2) 1995 1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................ $11.48 $10.67 $10.46 $ 9.78 $11.59 $10.29
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................. .22 .22 .235 .16 .22 .24
Expenses.......................................... (.35) (.35) (.435) (.165) (.35) (.37)
Expense reimbursement(3).......................... - - .065 - - -
------ ------ ------ ------ ------ ------
Net investment loss................................. (.13) (.13) (.135) (.005) (.13) (.13)
Net realized and unrealized gain on securities...... .41 .9825 .7475 .745 .41 1.4725
------ ------ ------ ------ ------ ------
Total from investment operations.................... .28 .8525 .6125 .74 .28 1.3425
------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM
Net realized gains on securities.................. - (.0425) (.4025) (.06) - (.0425)
Excess of book-basis net realized gain on
securities...................................... (.26) - - - (.26) -
------ ------ ------ ------ ------ ------
Total distributions................................. (.26) (.0425) (.4025) (.06) (.26) (.0425)
------ ------ ------ ------ ------ ------
Net asset value, end of period...................... $11.50 $11.48 $10.67 $10.46 $11.61 $11.59
====== ====== ====== ====== ====== ======
TOTAL RETURN (4).................................... 2.62% 8.21% 6.15% 7.58% 2.60% 13.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................ $64.7 $48.8 $6.9 $1.2 $6.6 $5.1
Average net assets (millions)....................... $59.4 $26.4 $2.8 $0.5 $6.2 $2.4
Ratios to average net assets (annualized)(3)
Expenses.......................................... 3.05% 3.21% 3.88% 3.11% 3.05% 3.21%
Expenses, without expense reimbursement - - 4.50% - - -
Net investment income............................. (1.11%) (1.19%) (1.41%) (.12%) (1.13%) (1.15%)
Net investment income, without expense
reimbursement................................... - - (2.02%) - - -
Portfolio turnover rate............................. 120% 116% 120% 135% 120% 116%
</TABLE>
(1) Commencement of offering of shares.
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
F-15 See Notes to Financial Statements
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
American Capital World Portfolio Series is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company which offers shares in two separate portfolios, one of which is
described in this report: American Capital Global Equity Fund (the "Fund"). The
investment objective of the Fund is to provide long-term growth of capital
through investments in an internationally diversified portfolio of equity
securities. Investments in foreign securities involve certain risks not
ordinarily associated with investments in securities of domestic issuers,
including fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. INVESTMENT VALUATIONS--Securities listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed
securities for which the last sale price is not available are valued at the most
recent bid price. Securities for which market quotations are not readily
available are valued at fair value under a method approved by the Board of
Directors.
Short-term investments with a maturity of 60 days or less when
purchased are valued at amortized cost, which approximates market value.
Short-term investments with a maturity of more than 60 days when purchased are
valued based on market quotations until the remaining days to maturity becomes
less than 61 days. From such time, until maturity, the investments are valued at
amortized cost.
B. REPURCHASE AGREEMENTS--A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser"),
the daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are 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. FOREIGN CURRENCY TRANSLATION--The market values of foreign securities,
forward currency exchange contracts and other assets and liabilities stated in
foreign currency are translated into U.S. dollars based on quoted exchange rates
as of noon Eastern
F-16
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Time. The cost of securities is determined using historical exchange rates.
Income and expenses are translated at prevailing exchange rates when accrued or
incurred. Gains and losses on the sale of securities are not segregated for
financial reporting purposes between amounts arising from changes in exchange
rates and amounts arising from changes in the market prices of securities.
Realized gain and loss on foreign currency includes the net realized amount from
the sale of currency and the amount realized between trade date and settlement
date on security transactions.
D. FORWARD CURRENCY EXCHANGE CONTRACTS--The Fund enters into forward currency
exchange contracts in order to hedge its exposure to changes in foreign currency
exchange rates on its foreign portfolio holdings or settle transactions. A
forward currency exchange contract is a commitment to buy or sell a foreign
security at a set price on a future date. Changes in the value of the contract
are recognized by marking the contract to market on a daily basis to reflect
current currency translation rates. The Fund realizes gains or losses at the
time the forward currency exchange contract is closed. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts, and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. FUTURES CONTRACTS--Transactions in futures contracts are utilized in
strategies to manage the market risk of the Fund's investments by increasing or
decreasing the percentage of assets effectively invested. The purchase of a
futures contract increases the impact on net asset value of changes in the
market price of investments. There is also a risk that the market movement of
such instruments may not be in the direction forecasted.
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. A portion of these funds is held as
collateral in an account in the name of the broker, the Fund's agent in
acquiring the futures position. During the period the futures contract is open,
changes in the value of the contract ("variation margin") are recognized by
marking the contract to market on a daily basis. As unrealized gains or losses
are incurred, variation margin payments are received from or made to the broker.
Upon the closing or cash settlement of a contract, gains or losses are realized.
The cost of securities acquired through delivery under a contract is adjusted by
the unrealized gain or loss on the contract.
F. FEDERAL INCOME TAXES--No provision for federal income taxes is required
because the Fund has elected to be taxed as a "regulated investment company"
under the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized gains on investments to its shareholders.
F-17
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Fund designates $1,241,000 as a capital gain dividend for the purpose of the
dividend paid deduction. Additionally, approximately $3.7 million of post
October losses are deferred for tax purposes to the 1996 fiscal year.
G. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--Investment
transactions are accounted for on the trade date. Realized gains and losses
on investments are determined on the basis of identified cost. Dividend income
is recorded on the ex-dividend date. Interest income is accrued daily.
Under the applicable foreign tax laws, a withholding tax may be
imposed on interest, dividends and realized gains generated from foreign
investments. Such withholding taxes are reflected on the Statement of Operations
as a reduction of the related income or gain.
H. DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in
accordance with the minimum distribution requirements of the Internal Revenue
Code, which may differ from generally accepted accounting principles. Such
dividends or distributions may result in dividends or distributions in excess of
financial statement earnings.
I. ORGANIZATION COSTS--Organization expenses of approximately $75,000 were
deferred and are being amortized over a five year period ending September, 1996.
NOTE 2-MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager to the Fund. The Adviser has entered
into a subadvisory agreement with John Govett & Co., Ltd. (the "Subadviser"),
who provides advisory services to the Fund and the Adviser with respect to the
Fund's investments in foreign securities. Prior to December 21, 1994, Lombard
Odier International Portfolio Management Ltd. served as subadviser to the Fund.
Management fees are calculated monthly, based on the average daily net assets of
the Fund at the annual rate of 1.00%. The Adviser pays 50% of its management fee
to the Subadviser.
Under the terms of the advisory agreement, if the total ordinary
business expenses of the Fund, exclusive of taxes, interest and distribution
plans, exceed the most restrictive expense limitation applicable in the states
where the Fund's shares are qualified for sale, the Adviser will reimburse the
Fund for the excess. Such reimbursement shall be made monthly. The most
restrictive expense limitation in effect was California's which aggregated
2 1/2% of the first $30 million of average daily net assets, 2% of the next
$70 million of average daily net assets and 1 1/2% of the average daily net
assets in excess of $100 million. No reimbursement was made during the current
period.
F-18
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
ACCESS Investor Services, an affiliate of the Adviser, serves as
the Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, such fees aggregated $586,655.
The Fund was advised that Van Kampen American Capital Distributors,
Inc. (the "Distributor") and Advantage Capital Corporation (the "Retail
Dealer"), both affiliates of the Adviser, received $1,104 and $43,099,
respectively, as their portion of the commissions charged on sales of Fund
shares during the period.
Under the Distribution Plans, each class of shares pays up to .25%
per annum of its average net assets to the Distributor for expenses and service
fees incurred. Class B shares and Class C shares pay an additional fee of up to
.75% per annum of their average daily net assets to reimburse the Distributor
for its distribution expenses. Actual distribution expenses incurred by the
Distributor for Class B and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At the end of the period, the unreimbursed expenses
incurred by the Distributor under the Class B and Class C plans aggregated
approximately $1.7 million and $94,600, respectively, and may be carried forward
and reimbursed through either the collection of the contingent deferred sales
charges from share redemptions or, subject to the annual renewal of the plans,
future Fund reimbursements of distribution fees.
During the period, the Fund paid brokerage commissions of $3,545 to
companies which are deemed affiliates of the Adviser's parent because it owns
more than 5% of the companies' outstanding voting securities. As of December 20,
1994, the companies were no longer considered affiliates.
Legal fees were for services rendered by O'Melveny & Myers, counsel
for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the
Fund.
Certain officers and directors of the Fund are officers and
directors of the Adviser, the Distributor, the Retail Dealer and the shareholder
service agent.
NOTE 3-INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $167,950,137 and
$132,013,519, respectively.
For federal income tax purposes, the identified cost of portfolio
securities and foreign currency was $122,629,621. Net unrealized appreciation
aggregated $9,224,761, gross unrealized appreciation aggregated $13,301,536 and
gross unrealized depreciation aggregated $4,076,775.
F-19
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
At the end of the period, the Fund held the following open forward
currency exchange contracts:
<TABLE>
<CAPTION>
CURRENCY SETTLEMENT U.S. DOLLAR UNREALIZED
DATE VALUE APPRECIATION
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
French Franc
24,827,500 (payable)................... 7/03/95 $4,996,496 $ 3,504
Japanese Yen
409,400,000 (payable).................. 11/02/95 4,940,899 59,101
---------- -------
$9,937,395 $62,605
========== =======
</TABLE>
NOTE 4-DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $900 plus a fee of $25 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $340. During the period, such fees aggregated $9,529.
The directors may participate in a voluntary Deferred Compensation
Plan (the `Plan'). The Plan is not funded, and obligations under the Plan will
be paid solely out of the Fund's general accounts. The Fund will not reserve or
set aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with an
earning component on amounts deferred equal to the income earned by the Fund on
its short-term investments or equal to the total return of the Fund.
NOTE 5-CAPITAL
The Fund offers three classes of shares at their respective net asset values per
share, plus a sales charge which is imposed either at the time of purchase (the
Class A shares) or at the time of redemption on a contingent deferred basis (the
Class B and Class C shares). All classes of shares have the same rights, except
that Class B and Class C shares bear the cost of distribution fees and certain
other class specific expenses. Class B shares and Class C shares automatically
convert to Class A shares six years and ten years after purchase, respectively,
subject to certain conditions. Realized and unrealized gains or losses,
investment income and expenses (other than class specific expenses) are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
F-20
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
The Fund has 200 million of each class of shares of $.001 par value
capital stock authorized. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
------------------------
1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A ............................................... 3,727,775 3,663,156
Class B ............................................... 2,555,706 4,223,622
Class C ............................................... 350,959 479,149
---------- ----------
6,634,440 8,365,927
---------- ----------
Shares issued for distributions reinvested
Class A ............................................... 114,288 7,564
Class B ............................................... 126,187 8,850
Class C ............................................... 12,253 701
---------- ----------
252,728 17,115
---------- ----------
Shares redeemed
Class A ............................................... (2,333,611) (1,268,856)
Class B ............................................... (1,306,968) (629,979)
Class C ............................................... (229,693) (41,635)
---------- ----------
(3,870,272) (1,940,470)
---------- ----------
Increase in shares outstanding .......................... 3,016,896 6,442,572
========== ==========
</TABLE>
NOTE 6-SHAREHOLDER MEETING
On July 21, 1995, a shareholder meeting of the Fund will be held to vote on: (1)
the Reorganization of the Fund from a Maryland corporation to a Delaware
Business trust and (2) an election of fourteen directors.
F-21
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL GLOBAL EQUITY FUND, A SERIES OF AMERICAN CAPITAL WORLD
PORTFOLIO SERIES, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Global Equity
Fund, a series of American Capital World Portfolio Series, Inc., at May 31,
1995, and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as `financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
July 20, 1995
F-22
