<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1999
REGISTRATION NOS. 33-37879
811-6220
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 17 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 18 [X]
</TABLE>
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
A. THOMAS SMITH III
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL, SECRETARY
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA
PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
------------------------
Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
[X] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (B)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE CHECK THE FOLLOWING BOX:
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR VALUE
$0.01 PER SHARE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN
GLOBAL GOVERNMENT
SECURITIES FUND
Van Kampen Global Government Securities Fund is a mutual fund with a primary
investment objective to seek to provide a high level of current income. The
Fund's secondary objectives are capital appreciation and protection of
principal. The Fund's investment adviser seeks to achieve the investment
objectives by investing primarily in a portfolio of high-quality foreign
government and U.S. government securities, and by actively managing the maturity
structure and currency exposure of the Fund's portfolio.
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission (SEC) or any state regulators, and neither the SEC nor any
state regulator has passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This prospectus is dated SEPTEMBER 28, 1999
[VAN KAMPEN FUNDS LOGO]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Fees and Expenses of the Fund...................... 6
Investment Objectives, Policies and Risks.......... 7
Investment Advisory Services....................... 14
Purchase of Shares................................. 15
Redemption of Shares............................... 22
Distributions from the Fund........................ 24
Shareholder Services............................... 24
Federal Income Taxation............................ 26
Financial Highlights............................... 28
</TABLE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser, or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with a primary investment objective to seek to provide
a high level of current income. The Fund's secondary objectives are capital
appreciation and protection of principal.
INVESTMENT STRATEGIES
The Fund's investment adviser seeks to achieve the investment objectives by
investing primarily in a portfolio of high-quality foreign government and U.S.
government securities, and by actively managing the maturity structure and
currency exposure of the Fund's portfolio. Under normal market conditions, the
Fund invests at least 65% of its total assets in such securities. Government
securities include securities issued or guaranteed by the U.S. government or by
foreign governments (including supranational issuers), or their agencies,
authorities, or instrumentalities. The Fund may invest up to 35% of its total
assets in high-quality debt securities issued by U.S. or foreign corporations.
Allocation of the Fund's investments will depend upon the relative
attractiveness of the global markets and particular issuers. The Fund's
investment adviser selects securities using a combination of "top down" criteria
to identify markets it believes have the potential to outperform due to economic
factors (such as government fiscal policies and the direction of interest rate
and currency movements) and "bottom up" criteria to identify issuers it believes
have suitable earnings prospects, credit quality and yield potential. Portfolio
securities are typically sold when any one of these assessments materially
changes. Under normal market conditions, the Fund invests in securities of
issuers located in at least three different countries, including the U.S. The
Fund may purchase and sell securities on a when-issued or delayed delivery
basis. The Fund may purchase or sell certain derivative instruments (such as
options, futures, options on futures, currency-related transactions involving
options, futures and forward contracts, and interest rate swaps or other
interest rate-related transactions) for various portfolio management purposes,
including seeking to reduce or eliminate foreign currency exchange risks
associated with securities denominated in non-U.S. dollar currencies.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objectives.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of debt securities tend to fall as
interest rates rise, and such declines tend to be greater among debt securities
with longer maturities. The Fund has no policy limiting the maturities of its
investments. To the extent that the Fund owns securities with longer maturities,
the Fund will be subject to greater market risk than a fund that owns
shorter-term securities. Foreign markets may, but often do not, move in tandem
with U.S. markets, and foreign markets may have more price volatility than U.S.
markets. The yields and market prices of government securities may move
differently and adversely compared to the yields and market prices of the
overall securities markets. Government securities, while backed by the issuing
government, are not guaranteed by the government against declines in their
market prices.
Market risk is often greater among certain types of debt securities, such as
mortgage-backed or asset-backed securities, stripped securities or zero-coupon
bonds. As interest rates change, these securities often fluctuate more in price
than traditional debt securities and may subject the Fund to greater market risk
than a fund that does not own these types of securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased, as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests in high-quality debt
securities, it is subject to a lower level of credit risk than a fund investing
in medium- or lower-quality securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well. The more the Fund invests in
adjustable, variable or floating rate securities or in securities susceptible to
prepayment risk, the greater the Fund's income risk.
3
<PAGE> 5
CALL OR PREPAYMENT RISK. If interest rates fall, the principal on debt
securities held by the Fund may be prepaid, or "called," earlier than expected.
If this happens, the proceeds from a prepaid security would be reinvested by the
Fund in securities bearing the new, lower interest rates, resulting in a
possible decline in the Fund's income and distributions to shareholders.
The Fund may invest in pools of mortgages or other assets issued or guaranteed
by private organizations or by U.S. government agencies or instrumentalities.
These securities are especially sensitive to prepayment risk because borrowers
often refinance or prepay such debt obligations when interest rates decline.
EXTENSION RISK. The value of debt securities tends to fall as interest rates
rise. For mortgage-backed securities or other similar securities, if interest
rates rise, borrowers may prepay the principal underlying the security more
slowly than originally expected, which may further reduce the market value of
such security and lengthen its expected life.
FOREIGN RISKS. Because the Fund owns securities of foreign issuers, it will be
subject to risks not usually associated with owning securities of U.S. issuers.
These risks can include fluctuations in foreign currencies, foreign currency
exchange controls, political and economic instability, differences in financial
reporting, differences in securities regulation and trading, and foreign
taxation issues. The risks of investing in developing or emerging markets are
greater than the risks generally associated with foreign investments, including
greater political uncertainties, an economy's dependence on international
development assistance, currency transfer restrictions, and greater delays and
disruptions in settlement transactions.
RISKS OF USING DERIVATIVE INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures,
currency-related transactions involving options, futures and forward contracts,
and interest rate swaps or other interest rate-related transactions are examples
of derivatives. Derivative investments involve risks different from direct
investment in underlying securities, such as imperfect correlation between the
value of the instruments and the underlying assets; risks of default by the
other party to certain transactions; risks that the transactions may result in
losses that partially or completely offset gains in portfolio positions; risks
that the transactions may not be liquid; and manager risk.
NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified" fund,
which means the Fund may invest a greater portion of its assets in a more
limited number of issuers than a "diversified" fund. As a result, the Fund may
be subject to greater risk than a diversified fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuations in the value of the Fund's shares.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objectives and investment strategies, the Fund may be
appropriate for investors who:
- - Seek high current income.
- - Are willing to take on the increased risks associated with investing in
foreign securities.
- - Can withstand volatility in the value of their shares of the Fund.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in government securities and other high-quality debt securities of
domestic and foreign issuers.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment and the Fund should not be used as a trading vehicle.
4
<PAGE> 6
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past seven calendar years prior to
the date of this prospectus. Sales loads are not reflected in this chart. If
these sales loads had been included, the returns shown below would have been
lower. Remember that the past performance of the Fund is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1992' 0.60
'1993' 15.24
'1994' -6.16
'1995' 14.10
'1996' 2.84
'1997' -0.17
'1998' 13.03
</TABLE>
The Fund's return for the six-month period ended June 30, 1999 was -8.17%
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the seven-year period shown in the bar chart, the highest quarterly
return was 7.40% (for the quarter ended September 30, 1998) and the lowest
quarterly return was -4.37% (for the quarter ended March 31, 1999).
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the J.P. Morgan Global Traded
Government Index*, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. The Fund's performance figures
include the maximum sales charges paid by investors. The index performance
figures do not include any commissions or sales charges that would be paid by
investors purchasing the securities represented by the index. Average annual
total returns are shown for the periods ended December 31, 1998 (the most
recently completed calendar year prior to the date of this prospectus). Remember
that the past performance of the Fund is not indicative of its future
performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns
for the
Periods Ended Past Past Since
December 31, 1998 1 Year 5 Years Inception
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen Global
Government
Securities
Fund -- Class A
Shares 7.60% 3.43% 4.82%(1)
J.P. Morgan
Global Traded
Government Index 14.82% 7.99% 7.95%(1)
.......................................................
Van Kampen Global
Government
Securities Fund--
Class B Shares 8.22% 3.42% 5.00%(1)**
J.P. Morgan
Global Traded
Government Index 14.82% 7.99% 7.95%(1)
.......................................................
Van Kampen Global
Government
Securities Fund--
Class C Shares 11.19% 3.63% 4.77%(2)
J.P. Morgan
Global Traded
Government Index 14.82% 7.99% 7.14%(2)
.......................................................
</TABLE>
Inception date: (1) 11/15/91, (2) 4/12/93.
* The J.P. Morgan Global Traded Government Index is an unmanaged index of major
foreign and U.S. government bonds of the following nations: Australia,
Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands,
Spain, Sweden, the United Kingdom and the United States, weighted by the
total market value of each country's securities and variations in currency
values.
** The "Since Inception" performance for Class B Shares reflects the conversion
of such shares into Class A Shares six years after purchase. Class B Shares
purchased on or after June 1, 1996 will convert to Class A Shares eight years
after purchase. See "Purchase of Shares".
The current yield for the thirty-day period ended May 31, 1999 is 3.55% for
Class A Shares, 2.97% for Class B Shares and 2.97% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.
5
<PAGE> 7
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
- --------------------------------------------------------------
</TABLE>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 4.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption None(2) 4.00%(3) 1.00%(4)
proceeds)
..............................................................
Maximum sales charge
(load) imposed on None None None
reinvested dividends
..............................................................
Redemption fees None None None
..............................................................
Exchange fee None None None
..............................................................
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
..............................................................
Distribution and/or
Service (12b-1) 0.25% 1.00%(6) 1.00%(6)
Fees(5)
..............................................................
Other Expenses 0.56% 0.54% 0.54%
..............................................................
Total Annual Fund
Operating Expenses 1.56% 2.29% 2.29%
..............................................................
</TABLE>
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares -- Class A Shares."
(3) The maximum deferred sales charge is 4.00% in the first and second year
after purchase, declining thereafter as follows:
Year 1-4.00%
Year 2-4.00%
Year 3-3.00%
Year 4-2.50%
Year 5-1.50%
After-None
See "Purchase of Shares -- Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."
(5) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."
(6) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year (except for the ten-year
amounts for Class B Shares which reflect the conversion of Class B Shares to
Class A Shares after eight years). Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $626 $ 944 $1,285 $2,243
.......................................................................
Class B Shares $632 $1,015 $1,375 $2,443(*)
.......................................................................
Class C Shares $332 $ 715 $1,225 $2,626
.......................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $626 $944 $1,285 $ 2,243
.........................................................................
Class B Shares $232 $715 $1,225 $ 2,443*
.........................................................................
Class C Shares $232 $715 $1,225 $ 2,626
.........................................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
6
<PAGE> 8
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund's primary investment objective is to seek to provide a high level of
current income. The Fund's secondary investment objectives are capital
appreciation and protection of principal. The Fund's investment objectives may
be changed by the Fund's Board of Trustees without shareholder approval, but no
change is anticipated. If there is a change in the investment objectives of the
Fund, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs. There
are risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objectives.
The Fund's investment adviser seeks to achieve the investment objectives by
investing primarily in a portfolio of high-quality foreign government and U.S.
government securities, and by actively managing the maturity structure and
currency exposure of the Fund's portfolio. Under normal market conditions, the
Fund invests at least 65% of its total assets in such securities. Government
securities include debt securities issued or guaranteed by the U.S. government
or by foreign governments (including supranational issuers), or their agencies,
authorities or instrumentalities. The Fund may invest up to 35% of its total
assets in high-quality debt securities issued by U.S. or foreign corporations.
Debt securities are considered high-quality if they are rated within the two
highest categories assigned by ratings agencies or unrated securities considered
by the Fund's investment adviser to be of comparable quality. The Fund buys and
sells securities with a view towards seeking a high level of current income and,
secondarily, capital appreciation and preservation of capital over the long-
term. Under normal market conditions, the Fund invests in securities of issuers
located in at least three different countries, including the U.S. Allocation of
the Fund's investments will depend upon the relative attractiveness of the
global markets and particular issuers. Investment in a global portfolio can
provide more opportunities for higher returns than investment in a portfolio
comprised exclusively of U.S. debt securities, but also involves special risks.
The Fund's investment adviser seeks to reduce risks through careful security
selection.
The Fund's investment adviser actively manages the Fund's portfolio, allocating
portfolio assets among various types of U.S. and foreign debt securities and
adjusting the Fund's exposure to each currency based upon its perception of the
most favorable markets and issuers. The Fund uses an investment strategy that
combines "top down" country and currency selection with "bottom up" security
selection to determine the optimal country, sector and security risk within the
Fund's portfolio. "Top down" means that the Fund seeks to allocate its
investments to markets that the Fund's investment adviser believes have the
potential to outperform other markets due to economic factors such as government
fiscal policies and the direction of interest rate and currency movements. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield and appreciation potential of such
country and the relationship of a country's currency to the U.S. dollar. In
considering these factors, a country's economic and political state, including
such factors as inflation rate, growth prospects and government policies will be
evaluated. Fundamental economic strength, credit quality and interest rate
trends are factors considered by the Fund's investment adviser in determining
whether to increase or decrease the emphasis placed upon a particular country or
sector within the Fund's investment portfolio. "Bottom up" means that the Fund
selects individual securities based upon the Fund's investment adviser's
assessment of the earnings prospects of the issuers of such securities. The
Fund's investment adviser evaluates individual debt securities based upon their
relative investment merit and considers factors such as yield, potential for
price or currency appreciation as well as credit quality, maturity and risk.
Types of debt securities in which the Fund invests include fixed or variable
rate bonds, notes, bills or debentures issued or guaranteed by the U.S. Treasury
or foreign governments or their respective agencies, authorities or
instrumentalities, or by U.S. or foreign corporations, mortgage-backed and
asset-backed securities, stripped securities, certificates of deposit, bankers'
acceptances and other obligations of banks or commercial paper.
The Fund's foreign investments may include securities that are issued by the
government of one nation but denominated in the currency of another nation (or
in a multinational currency unit). The Fund also
7
<PAGE> 9
may invest in debt securities issued by certain "supranational" entities, which
include entities designated or supported by governments to promote economic
reconstruction or development, international banking organizations and related
government agencies. An example of a supranational entity is the International
Bank for Reconstruction and Development (commonly referred to as the "World
Bank"). The Fund may from time to time invest up to 25% of its total assets in
these and other supranational entities. A more complete description of
supranational entities in which the Fund may invest is contained in the Fund's
Statement of Additional Information.
The Fund generally invests in debt securities denominated in multi-national
currency units or in currencies of countries whose governments are considered
stable by the Fund's investment adviser and whose currency is convertible into
U.S. dollars. The Fund may, however, invest a portion of its assets in
currencies of emerging markets countries. The Fund will not invest more than 25%
of its total assets in debt securities denominated in a single currency other
than the U.S. dollar or the euro.
The value of debt securities generally varies inversely with changes in
prevailing interest rates. If interest rates rise, debt security prices
generally fall; if interest rates fall, debt security prices generally rise.
Shorter-term securities are generally less sensitive to interest rate changes
than longer-term securities; thus, for a given change in interest rates, the
market prices of shorter-maturity debt securities generally fluctuate less than
the market prices of longer-maturity debt securities. Debt securities with
shorter maturities generally offer lower yields than debt securities with longer
maturities assuming all other factors, including credit quality, are equal.
While the Fund has no policy limiting the maturities of the individual debt
securities in which it may invest the Fund seeks to manage fluctuations in net
asset value resulting from changes in interest rates by actively managing the
portfolio maturity structure. If the value of debt securities owned by the Fund
with remaining maturities of less than 13 months exceeds 35% of the value of the
Fund's total assets, the Fund will invest at least 25% of its assets in
securities issued by banks and, accordingly, would be subject to economic or
regulatory risks associated with the banking industry. Debt securities issued by
government or political subdivisions are not part of this calculation because
such issues are not considered members of any industry.
Credit risk refers to an issuer's ability to make timely payments of interest
and principal. To seek to minimize credit risk associated with debt securities,
the Fund invests in high-quality debt securities. High quality securities are
securities rated, at the time of investment, AA- or higher by Standard & Poor's
("S&P") or Aa3 or higher by Moody's Investors Service ("Moody's") or, if
unrated, are considered by the Fund's investment adviser to be of comparable
quality. Credit quality at the time of purchase determines which securities may
be acquired, and a subsequent reduction in ratings does not require the Fund to
dispose of a security. Ratings agencies assign ratings based upon their opinions
of the quality of the debt securities they undertake to rate, but they do not
base their assessment on the market value risk of such securities. It should be
emphasized that ratings are general and are not absolute standards of quality.
As a global fund, the Fund invests in securities of U.S. and foreign issuers.
Under normal circumstances, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries, one of
which may be the U.S. Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not typically
associated with investments in domestic issuers. Since the Fund invests in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of investments
in the portfolio and the accrued income thereon. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and the Fund's yield on such
assets. Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are, in turn, affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation, and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. Thus, the Fund's net asset values may fluctuate as a result of changes
in foreign currency exchange rates independent of fluctuations in market rates
of interest.
The Fund may engage in various foreign currency transactions (such as forward
foreign currency contracts, options on foreign currencies, foreign
8
<PAGE> 10
currency swap agreements, futures contracts and options thereon) for portfolio
management or hedging purposes to seek to minimize adverse foreign currency
exchange fluctuations. There can, however, be no assurance that the Fund will
not be adversely affected by fluctuations in foreign currency exchange rates,
and such portfolio management or hedging transactions also entail risks. See
also "Risks of Investing in Securities of Foreign Issuers" and "Using Options,
Futures Contracts and Related Options" and the Fund's Statement of Additional
Information.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), all of
which are backed by the full faith and credit of the United States; and (2)
obligations issued or guaranteed by U.S. government agencies or
instrumentalities, including government guaranteed mortgage-related securities,
some of which are backed by the full faith and credit of the U.S. Treasury, some
of which are supported by the right of the issuer to borrow from the U.S.
government and some of which are backed only by the credit of the
instrumentality. U.S. government securities are considered among the most
creditworthy of fixed income investments; however, the yields on U.S. government
securities generally are lower than yields available from most other types of
debt securities having comparable duration.
Mortgage-backed securities guaranteed by the U.S. government, its agencies or
its instrumentalities include obligations issued or guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Further information regarding U.S. government agencies and mortgage-backed
securities is contained in the Fund's Statement of Additional Information.
The yield and payment characteristics of mortgage-backed securities differ from
traditional debt securities. Interest and principal payments are made more
frequently and principal may be prepaid at any time because the underlying
mortgage loans generally may be prepaid at any time. Faster or slower
prepayments than expected on underlying mortgage loans can dramatically alter
the yield to maturity and expected life of a mortgage-backed security. The value
of most mortgage-backed securities, like traditional debt securities, tends to
vary inversely with changes in interest rates; however, mortgage-backed
securities may benefit less than traditional debt securities from declining
interest rates because prepayment of mortgages tend to accelerate during periods
of declining interest rates. When mortgage loans underlying mortgage-backed
securities held by a Fund are prepaid, the Fund reinvests the prepaid amounts in
other income-producing securities, the yields of which will reflect interest
rates prevailing at the time. Therefore, a Fund's ability to maintain a
portfolio of higher-yielding mortgage-backed securities will be adversely
affected to the extent that prepayments must be reinvested in securities which
have lower yields. Alternatively, during periods of rising interest rates,
mortgage-backed securities are often more susceptible to extension risk than
traditional debt securities.
FOREIGN GOVERNMENT SECURITIES
The Fund's foreign investments may include debt securities issued or guaranteed
by foreign governments, their agencies or instrumentalities and supranational
entities. The Fund's foreign investments may include securities that are issued
by the government of one nation but denominated in the currency of another
nation (or in a multinational currency unit). The Fund may invest up to 25% of
its total assets in debt securities issued by certain "supranational" entities,
which include entities designated or supported by governments to promote
economic reconstruction or development, international banking organizations and
related government agencies. An example of a supranational entity is the
International Bank for Reconstruction and Development (commonly referred to as
the "World Bank"). A more complete description of supranational entities in
which the Fund may invest is contained in the Fund's Statement of Additional
Information. Investments in sovereign debt involve special risks. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due. In the event of default, there may be limited or no legal recourse in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. At certain times, certain countries (particularly emerging
market countries)
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have declared a moratoria on the payment of principal and interest on external
debt.
RISKS OF INVESTING IN SECURITIES
OF FOREIGN ISSUERS
The Fund invests in securities of foreign issuers. Such securities may be
denominated in U.S. dollars and in currencies other than U.S. dollars. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the investment
adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume constraints,
limitations or restrictions, clearance or settlement procedures, or otherwise
could impact yields and result in temporary periods when assets are not fully
invested or attractive investment opportunities are foregone.
Investments in securities of developing or emerging markets are subject to
greater risks than investments in securities of developed markets since emerging
markets tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed markets.
In addition to the increased risks of investing in foreign securities, there are
often increased transactions costs associated with investing in foreign
securities, including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Since the Fund invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Fund will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Fund and the accrued income and unrealized appreciation or
depreciation of the investments. Changes in foreign currency exchange ratios
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The Fund may purchase and sell foreign currency on a spot basis in connection
with the settlement of transactions in securities traded in such foreign
currency. The Fund also may enter into contracts with banks, brokers or dealers
to purchase or sell securities or foreign currencies at a future date ("forward
contracts"). A foreign currency forward contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such 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
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purchased or sold and the date on which payment therefor is made or received.
The Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the United States dollar price of the security
("transaction hedge"). When the Fund believes that a foreign currency may suffer
a substantial decline against the United States dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the United States dollar may
suffer a substantial decline against foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). The Fund also may enter into a forward contract to sell a
different foreign currency for a fixed United States dollar amount where the
Fund believes that the United States dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
United States dollar value of the currency in which portfolio securities of the
Fund are denominated ("cross-hedge"). Seeking to protect against a change in the
value of a foreign currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such securities decline.
Furthermore, such transactions reduce or preclude the opportunity for gain if
the value of the currency should move in the direction opposite to the position
taken. Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such contracts. For
other currency related transactions, see "Using Options, Futures Contracts and
Related Options."
The risks of foreign investments should be considered carefully by an investor
in the Fund.
USING OPTIONS, FUTURES CONTRACTS
AND RELATED OPTIONS
The Fund may, but is not required to, use various investment strategies,
including options, futures, options on futures, currency-related transactions
involving options, futures and forward contracts, and interest rate swaps or
other interest rate-related transactions depending upon the status of the Fund's
portfolio and the investment adviser's expectations concerning the securities or
currency markets.
The Fund can engage in options transactions on securities (or currency or index
options or options on futures) to manage the portfolio's risk in advancing or
declining markets. For example, the value of a put option generally increases as
the underlying security declines below a specified level, value is protected
against a market decline to the degree the performance of the put 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.
Generally, the Fund expects that options will be purchased or sold on securities
exchanges. However, the Fund is authorized to purchase and sell listed and
over-the-counter options ("OTC Options"). OTC Options are subject to certain
additional risks including default by the other party to the transaction and the
liquidity of the transactions.
The Fund may enter into contracts for the purchase or sale for future delivery
of fixed-income securities or contracts based on financial indices including any
index of United States government securities or foreign government securities
("futures contracts") and may purchase and write put and call options to buy or
sell futures contracts ("options on futures contracts"). A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a specified price
on a specified date. A "purchase" of a futures contract means the incurring of a
contractual obligation to acquire the securities or foreign currencies called
for by the contract at a specified price on a specified date. The purchaser of a
futures contract on an index agrees to take delivery of an amount of cash equal
to the difference between a specified multiple of the value of the index on the
expiration date of the contract ("current contract value") and the price at
which the contract was originally struck. No physical delivery of the fixed-
income securities underlying the index is made. Options on futures contracts to
be written or purchased by the Fund will be traded on United States or foreign
exchanges. These investment techniques are used to hedge against anticipated
future changes in interest or exchange rates which otherwise might either
adversely affect the value of the Fund's portfolio securities or adversely
affect the price of securities which the Fund intends to purchase at a later
date.
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The Fund may use futures in many ways. For example, if the Fund's investment
adviser forecasts a market decline, the Fund may seek to reduce its exposure to
the securities markets by increasing its cash position. By selling index futures
contracts instead of portfolio securities, a similar result can be achieved to
the extent that the performance of the futures contracts correlates to the
performance of the Fund's portfolio securities. Sales of futures contracts
frequently may 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.
In addition to futures and options on securities, the Fund may engage in various
foreign currency transactions (forward currency contracts, options on foreign
currencies, foreign currency swap contracts, currency future contracts and
options thereon). The Fund may use currency options to increase its gross income
or to protect it against declines in the U.S. dollar value of foreign currency
denominated securities and against increases in the U.S. dollar cost of such
securities to be acquired. As in the case of other kinds of options, however,
the selling of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and the Fund could be required to
cover its position by purchasing or selling foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, the Fund may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies in which the Fund
invests are traded on U.S. and foreign exchanges or over-the-counter. There is
no specific percentage limitation on the Fund's investments in options on
foreign currencies. Currency futures contracts are used in a manner similar to
forward contracts. See a discussion of forward foreign currency contracts under
"Risks of Investing in Securities of Foreign Issuers."
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 or currencies. However, such
transactions involve risks different from the direct investment in underlying
securities. For example, there may be imperfect correlation between the value of
the instruments and the underlying assets. In addition, the risks of such
instruments include the risks of default by the other party to certain
transactions. The Fund may incur losses in using these instruments that
partially or completely offset gains in portfolio positions. These transactions
may not be liquid and involve manager risk. In addition, such transactions may
involve commissions and other costs, which may increase the Fund's expenses and
reduce its return. A more complete discussion of options, futures contracts and
related options and their risks is contained in the Fund's Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
OTHER INVESTMENTS AND RISK FACTORS
For cash management and investment purposes, the Fund may engage in repurchase
agreements with banks and broker-dealers. Such transactions are subject to the
risk of default by the other party.
The Fund may invest up to 10% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
The Fund may purchase and sell securities on a "when-issued" and "delayed
delivery" basis. The Fund accrues no income on such securities until the Fund
actually takes delivery of such securities. These transactions are subject to
market fluctuation; the value of the securities at delivery may be more or less
than their purchase price. The yields generally available on comparable
securities when delivery occurs may be higher than yields on the securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. The Fund will engage in when-issued and
delayed delivery transactions for the purpose of acquiring securities consistent
with the
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Fund's investment objective and policies and not for the purpose of investment
leverage.
Subject to applicable legal or regulatory limitations, the Fund may lend its
portfolio securities in an amount up to 15% of its total assets to broker-
dealers, banks or other recognized institutional borrowers of securities. Such
loans must be callable at any time and the borrower at all times during the loan
must maintain cash or liquid securities as collateral or provide the Fund an
irrevocable letter of credit equal to at least 100% of the value of the
securities loaned (including accrued interest). During the time portfolio
securities are on loan, the Fund receives any dividends or interest paid on such
securities and receives the interest earned on the collateral which is invested
in short-term instruments or receives an agreed-upon amount of interest income
from the borrower who has delivered the collateral or letter of credit. As with
any extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
The Fund may engage in substantial short-term trading and it may sell securities
without regard to the length of time they have been held in order to take
advantage of new investment opportunities or yield differentials or otherwise.
The Fund's portfolio turnover is shown under the heading "Financial Highlights."
The portfolio turnover rate may be expected to vary from year to year. A high
portfolio turnover rate (100% or more) increases the Fund's transactions costs,
(including brokerage commissions or dealer costs) and a high portfolio turnover
rate may result in the realization of more short-term capital gains than if the
Fund had a lower portfolio turnover. Increases in the Fund's transaction costs
would impact the Fund's performance. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may on a temporary basis hold cash (U.S. dollars
or foreign currencies) or invest a portion or all of its assets in high-quality
money-market instruments of U.S. or foreign issuers, which include securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
or foreign governments, prime commercial paper, certificates of deposit,
bankers' acceptances, and repurchase agreements of the foregoing. During times
of international political or economic uncertainty, all or a portion of the
Fund's assets may be in U.S. issuers and denominated in U.S. dollars. When
employing its temporary defensive strategy, the Fund would invest at least 25%
of its total assets in bank obligations, which exposes the Fund to economic or
regulatory risks affecting the banking industry. Under normal market conditions,
the potential for high current income and, secondarily, capital appreciation, on
these securities will tend to be lower than the potential for high current
income or capital appreciation on other securities that may be owned by the
Fund. In taking such a defensive position the Fund would not be pursuing, and
may not achieve its investment objectives.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Efforts in foreign countries to
remediate the potential Year 2000 Problem may not be as extensive as those in
the U.S. As a result, the operations of foreign markets and issuers may be
disrupted by the Year 2000 Problem which could adversely affect the
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<PAGE> 15
Fund's portfolio. The risks are greater with respect to certain emerging or
developing countries; because there is an increased likelihood that issuers of
securities of such countries cannot anticipate or effectively manage the affects
of computer programs and the Year 2000 Problem. Accordingly, the Fund's
investments may be adversely affected. The statements above are subject to the
Year 2000 Information and Readiness Disclosure Act which Act may limit the legal
rights regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY SERVICES
THE ADVISER
Van Kampen Asset Management Inc. is the Fund's investment adviser (the "Adviser"
or "Asset Management"). The Adviser is a wholly owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen Investments"). Van Kampen Investments is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $75 billion under management or supervision. Van Kampen Investments' more
than 50 open-end and 39 closed-end funds and more than 2,500 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen Funds Inc., the distributor of the Fund (the "Distributor") and the
sponsor of the funds mentioned above, is also a wholly owned subsidiary of Van
Kampen Investments. Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
THE SUBADVISER
Morgan Stanley Dean Witter Investment Management Inc. is the Fund's investment
subadviser (the "Subadviser"). The Subadviser is an indirect, wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. and an affiliate of the Adviser.
The Subadviser conducts a worldwide portfolio management business and provides a
broad range of portfolio management services to customers in the U.S. and
abroad. At December 31, 1998, the Subadviser, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice. The Subadviser's principal
office is located at 1221 Avenue of the Americas, New York, New York 10020.
---------------
ADVISORY AGREEMENTS. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate of .75% applied to the average daily net
assets of the Fund.
Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Fund. The
Fund 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. The Fund also pays all charges and expenses of its
day-to-day operations, including the compensation of trustees of the Trust
(other than those who are affiliated persons of the Adviser, Distributor or Van
Kampen Investments), the charges and expenses of legal counsel and independent
accountants, distribution fees, service fees, custodian fees, the costs of
providing reports to shareholders, and all other ordinary business expenses not
specifically assumed by the Adviser.
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with the Subadviser to assist the Adviser in performing its
investment advisory functions. Under the Subadvisory Agreement, the Subadviser
receives on an annual basis, 50% of the net advisory fees received by the
Adviser.
From time to time, the Adviser, the Subadviser or the Distributor may
voluntarily undertake to reduce the Fund's expenses by reducing the fees payable
to them or by reducing other expenses of the Fund in accordance with such
limitations as the Adviser, the Subadviser or Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics
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designed to recognize the fiduciary relationship among the Fund, the Adviser and
the Subadviser and their respective employees. The Codes of Ethics permit
directors, trustees, officers and employees to buy and sell securities for their
personal accounts subject to certain restrictions. Persons with access to
certain sensitive information are subject to pre-clearance and other procedures
designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. J. David Germany, Michael B. Kushma and Paul F. O'Brien
have been primarily responsible for the Fund's day-to-day management since April
1, 1997. Ram Willner has shared primary responsibility for the Fund's day-to-day
management since April 1, 1998. Christian G. Roth has shared primary
responsibility for the Fund's day-to-day management since September 1, 1998.
Mr. Germany joined the Subadviser in 1996 and has been a portfolio manager with
the Adviser's affiliate, Miller Anderson & Sherrerd, LLP ("MAS") since 1991. He
was Vice President and Senior Economist for Morgan Stanley Dean Witter & Co.
from 1989 to 1991. He assumed responsibility for the Global Fixed Income and
International Fixed Income Portfolios of the MAS-advised MAS Funds in 1993 and
the MAS Funds' Multi-Asset-Class Portfolio in 1994. Mr. Germany was Senior Staff
Economist (International Finance and Macroeconomics) to the Council of Economic
Advisors--Executive Office of the President from 1986 through 1987 and an
Economist with the Board of Governors of the Federal Reserve System--Division of
International Finance from 1983 through 1987. He holds an A.B. (Valedictorian)
from Princeton University and a Ph.D. in Economics from the Massachusetts
Institute of Technology.
Mr. Kushma, a Principal at Morgan Stanley Dean Witter & Co., joined the firm in
1987. He was a member of Morgan Stanley Dean Witter & Co.'s global fixed income
strategy group in the fixed income division from 1987 to 1995 where he became
the division's senior government bond strategist. He joined the Subadviser in
1995 where he took responsibility for the global fixed income portfolio. Mr.
Kushma received an A.B. in economics from Princeton University in 1979, an M.Sc.
in economics from the London School of Economics in 1981, and an M.Phil. in
economics from Columbia University in 1983.
Mr. O'Brien joined the Subadviser and MAS in 1996. He was head of European
Economics from 1993 through 1995 for JP Morgan and Principal Administrator from
1991 through 1992 for the Organization for Economic Cooperation and Development.
He assumed responsibility for the MAS-advised MAS Funds' Global Fixed Income and
International Fixed Income Portfolios in 1996. Mr. O'Brien holds a B.S. from the
Massachusetts Institute of Technology and a Ph.D. in Economics from the
University of Minnesota.
Mr. Willner, a Principal of Morgan Stanley Dean Witter & Co., has been a
portfolio manager with MAS since April 1, 1998. From 1994 to 1998, he was a
Market Strategist/Risk Control Manager and Director of International Bond
Research with Pacific Investment Management Company and from 1992 to 1994 he was
a Senior Quantitative Analyst for Sanford C. Bernstein & Co. Prior to that he
was a Vice President of Citibank, NA. Mr. Willner holds a B.A. from Brandeis
University, an M.S.I.A. from Carnegie-Mellon University and a D.B.A. from
Harvard University.
Mr. Roth joined MAS in 1991 and is a Principal of Morgan Stanley Dean Witter &
Co. He has been a Portfolio Manager with MAS since 1993. Prior to joining MAS,
Mr. Roth served as a Senior Associate in the Merchant Banking Group of Dean
Witter Capital Corporation. Mr. Roth received a B.S. from the Wharton School of
Business at the University of Pennsylvania. He is a Chartered Financial Analyst
and a member of the Financial Analysts of Philadelphia.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
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<PAGE> 17
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan (described below) under which its distribution fee
or service fee is paid, (iii) each class of shares has different exchange
privileges, (iv) certain classes of shares are subject to a conversion feature
and (v) certain classes of shares have different shareholder service options
available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Trustees reserves the right to calculate the net
asset value per share and adjust the offering price based thereon more
frequently than once daily if deemed desirable. Net asset value per share for
each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Such
computation is made by using prices as of the close of trading on the Exchange.
Securities listed or traded on a national securities exchange are valued at the
mean of representative quoted bid or asked prices. Unlisted securities and
listed securities for which such prices are not available are valued at prices
of comparable securities. 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 are valued at cost plus interest earned
(amortized cost), which approximates market value. Any other assets will be
valued at fair value as determined in good faith by the Trustees of the Fund.
Trading in securities on many foreign securities exchanges (including European
and Far Eastern securities exchanges) and over-the-counter markets is normally
completed before the close of business on each U.S. business day. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days which are not U.S. business
days. Changes in valuations on certain securities may occur at times or on days
on which the Fund's net asset value is not calculated and on which the Fund does
not effect sales, redemptions and exchanges of its shares.
The Fund calculates net asset value per share, and therefore effects sales,
redemptions and exchanges of its shares, as of the close of trading on the
Exchange each day the Exchange is open for trading. Such calculation does not
take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation.
If events materially affecting the value of foreign portfolio securities or
other portfolio securities occur between the time when their price is determined
and the time when the Fund's net asset value is calculated, such securities may
be valued at fair value as determined in good faith by the Adviser based in
accordance with procedures established by the Fund's Board of Trustees.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund also has adopted a service
plan (the "Service Plan") with respect to each class of its shares. Under the
Distribution Plan and the Service Plan, the Fund pays distribution fees in
connection with the sale and distribution of its shares and service fees in
connection with the provision of ongoing services to shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
16
<PAGE> 18
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and other expenses associated with such class of shares. To
assist investors in comparing classes of shares, the tables under the heading
"Fees and Expenses of the Fund" provide a summary of sales charges and expenses
and an example of the sales charges and expenses of the Fund applicable to each
class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the NASD who are acting as securities dealers ("dealers") and NASD
members or eligible non-NASD members who are acting as brokers or agents for
investors ("brokers"). "Dealers" and "brokers" are sometimes referred to herein
as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
17
<PAGE> 19
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend a total of
0.25% per year of the Fund's average daily net assets with respect to the Class
A Shares of the Fund. From such amount, under the Service Plan, the Fund may
spend up to 0.25% per year of the Fund's average daily net assets with respect
to the Class A Shares for the ongoing provision of services to Class A
shareholders by the Distributor and by brokers, dealers or financial
intermediaries and for the maintenance of such shareholders' accounts.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- ------------------------------------------------
<S> <C> <C> <C>
First 4.00%
................................................
Second 4.00%
................................................
Third 3.00%
................................................
Fourth 2.50%
................................................
Fifth 1.50%
................................................
Sixth and After None
................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the last day
of the month.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
18
<PAGE> 20
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares for the
ongoing provision of services to Class B shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares for the
ongoing provision of services to Class C shareholders by the Distributor and by
brokers, dealers or financial intermediaries and for the maintenance of such
shareholders' accounts. The aggregate distribution and service fees are 0.90%
per year of the average daily net assets attributable to Class C Shares of the
Fund with respect to accounts existing before April 1, 1995.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares six years after the end of the calendar month in which the
shares were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan Class C Shares received on such shares, automatically
convert to Class A Shares ten years after the end of the calendar month in which
such shares were purchased. Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. The conversion schedule applicable to a share of the Fund acquired
through the exchange privilege from another Van Kampen fund participating in the
exchange program is determined by reference to the Van Kampen fund from which
such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption
19
<PAGE> 21
of Shares." Subject to certain limitations, a shareholder who has redeemed Class
C Shares of the Fund may reinvest in Class C Shares at net asset value with
credit for any contingent deferred sales charge if the reinvestment is within
180 days after the redemption. For a more complete description of contingent
deferred sales charge waivers, please refer to the Fund's Statement of
Additional Information or contact your authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day backdating provisions, an adjustment will be made at
the time of the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the specified period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the reduced sales charge previously paid. Such payments may
be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales
20
<PAGE> 22
charge for all other investments made from unit trust distributions will be
1.00% of the offering price (1.01% of net asset value). Of this amount, the
Distributor will pay to the authorized dealer, if any, through which such
participation in the qualifying program was initiated 0.50% of the offering
price as a dealer concession or agency commission. Persons desiring more
information with respect to this program, including the terms and conditions
that apply to the program, should contact their authorized dealer or the
Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families and
their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21 years
of age when purchasing for any accounts they beneficially own, or, in the
case of any such financial institution, when purchasing for retirement plans
for such institution's employees; provided that such purchases are otherwise
permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement plan
or held in a tax-advantaged retirement account who purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code and assets held by an employer
or trustee in connection with an eligible deferred compensation plan under
Section 457 of the Code. Such plans will qualify
21
<PAGE> 23
for purchases at net asset value provided, for plans initially establishing
accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is at
least $500,000 or (2) such shares are purchased by an employer sponsored
plan with more than 100 eligible employees. Such plans that have been
established with a Participating Fund or have received proposals from the
Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or before
May 1, 1997. Section 403(b) and similar accounts for which Van Kampen Trust
Company serves as custodian will not be eligible for net asset value
purchases based on the aggregate investment made by the plan or the number
of eligible employees, except under certain uniform criteria established by
the Distributor from time to time. Prior to February 1, 1997, a commission
will be paid to authorized dealers who initiate and are responsible for such
purchases within a rolling twelve-month period as follows: 1.00% on sales to
$5 million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a commission
will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the Fund
and Participating Funds, (iv) has a membership that the authorized dealer
can certify as to the group's members and (v) satisfies other uniform
criteria established by the Distributor for the purpose of realizing
economies of scale in distributing such shares. A qualified group does not
include one whose sole organizational nexus, for example, is that its
participants are credit card holders of the same institution, policy holders
of an insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
contingent deferred sales charge of 1.00% in the event of redemption within
one year of purchase, and a commission will be paid to authorized dealers
who initiate and are responsible for such sales to each individual as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed
22
<PAGE> 24
within seven days after receipt by Investor Services of the request and any
other necessary documents in proper form as described below. Such payment may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. Such payment may, under certain circumstances, be paid wholly or in part by
a distribution-in-kind of portfolio securities. If the shares to be redeemed
have been recently purchased by check, Investor Services may delay the payment
of redemption proceeds until it confirms the purchase check has cleared, which
may take up to 15 days. A taxable gain or loss will be recognized by the
shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption to be in proper form. In some
cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed properly endorsed for transfer must accompany the redemption request.
In the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges
23
<PAGE> 25
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a value on the date of the notice of redemption less than the
minimum initial investment as specified in this prospectus. At least 60 days'
advance written notice of any such involuntary redemption will be provided to
the shareholder and such shareholder will be given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS FROM THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and to distribute all or substantially all of this
income, less expenses, monthly as dividends to shareholders. Dividends are
automatically applied to purchase additional shares of the Fund at the next
determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. Net realized capital gain represents the
total profit from sales of securities minus total losses from sales of
securities including losses carried forward from prior years. The Fund
distributes any taxable net realized capital gain to shareholders as capital
gain dividends at least annually. As in the case of dividends, capital gain
dividends are automatically reinvested in additional shares of the Fund at the
next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gain dividends
be reinvested at net asset value, or that both dividends and capital gain
dividends be paid in cash.
24
<PAGE> 26
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest predetermined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint Investor Services as agent by completing the Authorization for
Redemption by Check form and the appropriate section of the application and
returning the form and the application to Investor Services. Once the form is
properly completed, signed and returned to the agent, a supply of checks drawn
on State Street Bank and Trust Company (the "Bank") will be sent to the Class A
shareholder. These checks may be made payable by the Class A shareholder to the
order of any person in any amount of $100 or more.
When a check is presented to the Bank for payment, full and fractional Class A
Shares required to cover the amount of the check are redeemed from the
shareholder's Class A Share account by Investor Services at the next determined
net asset value per share. Check writing redemptions represent the sale of Class
A Shares. Any gain or loss realized on the redemption of shares is a taxable
event.
Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's account, the check will be
returned and the shareholder may be subject to additional charges.
A shareholder may not liquidate the entire account by means of a check. The
check writing privilege may be terminated or suspended at any time by the Fund
or by the Bank. Retirement plans and accounts that are subject to backup
withholding are not eligible for the privilege.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments, Investor Services and the Fund employ procedures considered
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone
25
<PAGE> 27
instructions which it reasonably believes to be genuine. If the exchanging
shareholder does not have an account in the fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gains options (except dividend diversification) and authorized
dealer of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, however, an exchanging shareholder must submit a specific
request. The Fund reserves the right to reject any order to acquire its shares
through exchange. In addition, the Fund and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privileges to such shareholders. For further
information on these restrictions, see the Statement of Additional Information.
The Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME
TAXATION
Distributions of the Fund's investment company taxable income (consisting
generally of ordinary income and net short-term capital gain) are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain (which is the excess of net long-term capital
gain over net short-term capital loss) as capital gain dividends, if any, are
taxable to shareholders as long-term capital gains, whether paid in cash or
reinvested in additional shares, and regardless of how long the shares of the
Fund have been held by such shareholders. Capital gain dividends may be taxed at
different rates depending on how long the Fund held the securities. The Fund
expects that its distributions will consist primarily of ordinary income and
capital gain dividends. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a
26
<PAGE> 28
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S. withholding tax on certain distributions (whether received in
cash or in shares) at a rate of 30% or such lower rate as prescribed by an
applicable treaty. Prospective foreign investors should consult their U.S. tax
advisers concerning the tax consequences to them of an investment in shares.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its investment company taxable income, the Fund
will not be required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gain net income, then the Fund will be subject to
a 4% excise tax on the undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, disposing, exchanging
or selling shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
27
<PAGE> 29
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Class A Shares
Year Ended May 31,
1999(a) 1998(a) 1997(a) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $7.553 $7.604 $7.92 $8.24 $8.26
------ ------ ------ ----- -----
Net Investment Income............. .369 .352 .526 .56 .60
Net Realized and Unrealized
Gain/Loss....................... (.144) .088 (.310) (.328) (.016)
------ ------ ------ ----- -----
Total from Investment Operations... .225 .440 .216 .232 .584
------ ------ ------ ----- -----
Less Distribution from and in
Excess of Net Investment Income... .480 .491 .532 .552 .604
------ ------ ------ ----- -----
Net Asset Value, End of the
Period............................ $7.298 $7.553 $7.604 $7.92 $8.24
====== ====== ====== ===== =====
Total Return(b).................... 2.75% 5.98% 2.65% 2.81% 7.52%
Net Assets at End of the Period (In
millions)......................... $23.9 $21.9 $25.7 $36.4 $47.9
Ratio of Expenses to Average Net
Assets(c)......................... 1.56% 1.95% 1.57% 1.51% 1.42%
Ratio of Net Investment Income to
Average Net Assets(c)............. 4.88% 4.69% 6.58% 6.66% 7.18%
Portfolio Turnover................. 183% 276% 161% 239% 209%
<CAPTION>
Class B Shares
Year Ended May 31,
1999(a) 1998(a) 1997(a) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $7.596 $7.645 $7.96 $8.28 $8.30
------ ------ ------ ----- ------
Net Investment Income............. .320 .299 .477 .49 .53
Net Realized and Unrealized
Gain/Loss....................... (.152) .083 (.320) (.318) (.006)
------ ------ ------ ----- ------
Total from Investment Operations... .168 .382 .157 .172 .524
------ ------ ------ ----- ------
Less Distribution from and in
Excess of Net Investment Income... .420 .431 .472 .492 .544
------ ------ ------ ----- ------
Net Asset Value, End of the
Period............................ $7.344 $7.596 $7.645 $7.96 $8.28
====== ====== ====== ===== ======
Total Return(b).................... 1.94% 4.98% 2.00% 2.06% 6.69%
Net Assets at End of the Period (In
millions)......................... $27.7 $39.5 $56.9 $97.7 $123.4
Ratio of Expenses to Average Net
Assets(c)......................... 2.29% 2.72% 2.33% 2.27% 2.18%
Ratio of Net Investment Income to
Average Net Assets(c)............. 4.06% 3.91% 5.86% 5.91% 6.41%
Portfolio Turnover................. 183% 276% 161% 239% 209%
<CAPTION>
Class C Shares
Year Ended May 31,
1999(a) 1998(a) 1997(a) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $7.534 $7.585 $7.91 $8.22 $8.25
------ ------ ------ ----- -----
Net Investment Income............. .316 .293 .471 .46 .51
Net Realized and Unrealized
Gain/Loss....................... (.150) .087 (.324) (.278) .004
------ ------ ------ ----- -----
Total from Investment Operations... .166 .380 .147 .182 .514
------ ------ ------ ----- -----
Less Distribution from and in
Excess of Net Investment Income... .420 .431 .472 .492 .544
------ ------ ------ ----- ----- ---
Net Asset Value, End of the
Period............................ $7.280 $7.534 $7.585 $7.91 $8.22
====== ====== ====== ===== =====
Total Return(b).................... 1.96% 5.02% 1.88% 2.20% 6.60%
Net Assets at End of the Period (In
millions)......................... $2.4 $3.5 $5.6 $9.5 $18.5
Ratio of Expenses to Average Net
Assets(c)......................... 2.29% 2.72% 2.33% 2.27% 2.18%
Ratio of Net Investment Income to
Average Net Assets(c)............. 4.05% 3.90% 5.84% 5.91% 6.42%
Portfolio Turnover................. 183% 276% 161% 239% 209%
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended through May 31, 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to the
Adviser's reimbursement of certain expenses was less than 0.01%.
See Financial Statements and Notes thereto
28
<PAGE> 30
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Don G. Powell*
Jerry D. Choate Phillip B. Rooney
Richard M. DeMartini* Fernando Sisto
Linda Hutton Heagy Wayne W. Whalen*
R. Craig Kennedy Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Dennis J. McDonnell*
Executive Vice President & Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
Edward C. Wood III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
Stephen L. Boyd*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
Curtis W. Morell*
Vice President & Chief Accounting Officer
Tanya M. Loden*
Controller
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUND INFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas
New York, NY 10020
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen Global Government Securities Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Global Government Securities Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 31
VAN KAMPEN
GLOBAL GOVERNMENT
SECURITIES FUND
PROSPECTUS
SEPTEMBER 28, 1999
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports to
shareholders. The annual report explains the
market conditions and investment strategies
affecting the Fund's performance during its
last fiscal year.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SECs Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov).
Information on the operation of the SECs
Public Reference Rooms may be obtained by
calling the SEC at (800) SEC-0330. You can
also request copies of these materials, upon
payment of a duplicating fee, by writing the
Public Reference Section of the SEC,
Washington DC, 20549-6009.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811-6220.
GGS PRO 9/99
<PAGE> 32
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND
Van Kampen Global Government Securities Fund (the "Fund") is a mutual fund
with a primary investment objective to seek to provide a high level of current
income. The Fund's secondary objectives are capital appreciation and protection
of principal. The Fund's investment adviser seeks to achieve the investment
objectives by investing primarily in a portfolio of high-quality foreign
government and U.S. government securities, and by actively managing the maturity
structure and currency exposure of the Fund's portfolio.
The Fund is organized as a non-diversified series of the Van Kampen World
Portfolio Series Trust, an open-end, management investment company (the
"Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833
for the hearing impaired).
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-4
Options, Futures Contracts and Related Options.............. B-19
Investment Restrictions..................................... B-28
Trustees and Officers....................................... B-32
Investment Advisory Agreement............................... B-42
Other Agreements............................................ B-43
Distribution and Service.................................... B-44
Transfer Agent.............................................. B-48
Portfolio Transactions and Brokerage Allocation............. B-48
Shareholder Services........................................ B-50
Redemption of Shares........................................ B-53
Contingent Deferred Sales Charge-Class A.................... B-53
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-53
Taxation.................................................... B-55
Fund Performance............................................ B-60
Other Information........................................... B-64
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-10
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED SEPTEMBER 28, 1999.
<PAGE> 33
GENERAL INFORMATION
The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust (the "Declaration
of Trust") dated June 21, 1995. The Declaration of Trust permits the Trustees to
create one or more separate investment portfolios and issue a series of shares
for each portfolio, such as the Fund. The Trustees can further sub-divide each
series of shares into one or more classes of shares for each portfolio.
The Trust was originally organized on May 25, 1990 under the name American
Capital World Portfolio Series, Inc. as a Maryland corporation (the "Maryland
corporation"). The Maryland corporation was reorganized into the Trust under the
name Van Kampen American Capital World Portfolio Series Trust on August 31,
1995. The Trust was created for the purpose of facilitating the Maryland
corporation reorganization into a Delaware business trust. On July 14, 1998, the
Trust adopted its current name.
The Fund was organized in 1990 under the name American Capital Global
Government Fund as a series of the Maryland corporation. The Fund was
reorganized as a series of the Trust under the name Van Kampen American Capital
Global Government Securities Fund on August 31, 1995. On July 14, 1998, the Fund
adopted its current name.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. ("Morgan Stanley Dean Witter"). The principal
office of the Fund, the Adviser, the Distributor and Van Kampen Investments is
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley Dean Witter Investment Management Inc.,
an investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
B-2
<PAGE> 34
The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series and separate votes are taken by each
class of a series on matters affecting an individual class of such series. For
example, a change in investment policy for a series would be voted upon by
shareholders of only the series involved and a change in the distribution fee
for a class of a series would be voted upon by shareholders of only the class of
such series involved. Except as otherwise described in the Prospectus or herein,
shares do not have cumulative voting rights, preemptive rights or any
conversion, subscription or exchange rights.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
B-3
<PAGE> 35
As of September 1, 1999, no person was known by the Fund to own
beneficially or to hold of record 5% or more of the outstanding Class A Shares,
Class B Shares or Class C Shares of the Fund, except as follows:
<TABLE>
<CAPTION>
Amount of
Ownership at Class Percentage
Name and Address of Holder September 1, 1999 of Shares Ownership
-------------------------- ----------------- --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company.................... 694,842.47 A 20.51%
2800 Post Oak Blvd. 444,276.25 B 17.24%
Houston, TX 77056 20,159.99 C 6.58%
Merrill Lynch Pierce Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484............... 15,418.75 C 5.03%
</TABLE>
- ------------------------------------
Van Kampen Trust Company acts as custodian for certain employee benefit
plans
and individual retirement accounts.
INVESTMENT OBJECTIVES AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements with banks or broker-dealers
for investment purposes or in order to earn a return on temporarily available
cash. A repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Fund may enter into repurchase
agreements with banks or broker-dealers deemed to be creditworthy by the Adviser
under guidelines approved by the Trustees. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid securities held by the Fund, would exceed the
Fund's limitation on illiquid securities described below. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible lack
of access to income on the underlying security during this period; and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
B-4
<PAGE> 36
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. government, its agencies
or instrumentalities) may have maturity dates exceeding one year. The Fund does
not bear the risk of a decline in value of the underlying security unless the
seller defaults under its repurchase obligation.
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund may purchase and sell portfolio securities on a "when-issued" and
"delayed delivery" basis. No income accrues to the Fund on securities in
connection with such purchase transactions prior to the date the Fund actually
takes delivery of such securities. These transactions are subject to market
fluctuation; the value of the securities at delivery may be more or less than
their purchase price, and yields generally available on comparable securities
when delivery occurs may be higher or lower than yields on the securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller, as the case may be, to consummate the transaction, failure by the other
party to complete the transaction may result in the Fund missing the opportunity
of obtaining a price or yield considered to be advantageous. When the Fund is
the buyer in such a transaction, however, it will maintain, in a segregated
account with its custodian, cash or portfolio securities having an aggregate
value equal to the amount of such purchase commitments until payment is made.
The Fund will make commitments to purchase securities on such basis only with
the intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objective and
policies and not for the purpose of investment leverage.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be
B-5
<PAGE> 37
readily marketable without some time delay. Investments in securities which have
no ready market are valued at fair value as determined in good faith by the
Adviser in accordance with procedures approved by the Fund's Trustees.
Ordinarily, the Fund would invest in restricted securities only when it receives
the issuer's commitment to register the securities without expense to the Fund.
However, registration and underwriting expenses (which may range from 7% to 15%
of the gross proceeds of the securities sold) may be paid by the Fund.
Restricted securities which can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act ("144A Securities") and are determined
to be liquid under guidelines adopted by and subject to the supervision of the
Fund's Board of Trustees are not subject to the limitation on illiquid
securities. Such 144A Securities are subject to monitoring and may become
illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.
LENDING OF SECURITIES
Consistent with applicable legal and regulatory requirements, the Fund may
lend its portfolio securities in an amount up to 15% of the value of its total
assets to broker-dealers and other financial institutions provided that such
loans are at all times secured by cash collateral that is at least equal to the
market value, determined daily, of the loaned securities and such loans are
callable at any time by the Fund. The advantage of such loans is that the Fund
continues to receive the interest or dividends on the loaned securities, while
at the same time earning interest on the collateral which is invested in
short-term obligations. The Fund may pay reasonable finders', administrative and
custodial fees in connection with loans of its securities. There is no assurance
as to the extent to which securities loans can be effected.
If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates, and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over collateral. As with any extensions of credit, there are risks of delay
in recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's Adviser to be
creditworthy and when the consideration which can be earned from such loans is
believed to justify the attendant risks. On termination of the loan, the
borrower is required to return the securities to the Fund; any gain or loss in
the market price during the loan would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have
B-6
<PAGE> 38
a material effect on the Fund's investment in the securities which are the
subject of the loan.
SHORT SALES AGAINST THE BOX
The Fund may from time to time make short sales of securities it 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 required to
recognize gain from the short sale for federal income tax purposes at the time
it enters into the short sale, even though it does not receive the sales
proceeds until it delivers the securities. The Fund is said to have a short
position in the securities sold until it delivers such securities 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 involved in such sales. 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.
NON-DIVERSIFICATION
The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"). If the Fund
qualifies as a regulated investment company under the Code, it will be relieved
of any liability for federal income tax to the extent its earnings are
distributed to shareholders. In order to qualify, among other requirements, the
Fund must limit its investments so that, at the close of each calendar quarter,
(i) not more than 25% of the market value of the Fund's total assets are
invested in securities of a single issuer (other than the U.S. government, its
agencies and instrumentalities), and (ii) at least 50% of the market value of
its total assets is invested in cash, securities of the U.S. government, its
agencies and instrumentalities and other securities limited in respect of any
one issuer to an amount not greater than 5% of the market value of the Fund's
total assets and not more than 10% of the outstanding voting securities of such
issuer. Since the Fund, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified investment company, an
investment in the Fund may, under certain circumstances, present greater risks
to an investor than an investment in a diversified company.
FOREIGN SECURITIES
The Fund's investments in supranational entities may include, but are not
limited to, the following: International Bank for Reconstruction and Development
(World Bank) established to promote reconstruction and economic development in
its member nations; European Coal and Steel Community, a partnership of 12
European countries created to establish a common market for coal and steel and
to further the economic development in its member countries; European Investment
Bank, established to finance investment projects that contribute to the balanced
development of the European Economic
B-7
<PAGE> 39
Community; European Bank for Reconstruction & Development, whose objectives are
to foster the transition toward open market economies and to promote private and
entrepreneurial initiative in countries of central and eastern Europe;
Inter-American Development Bank, established to further the development of its
Latin American member countries; African Development Bank, established to
contribute to the economic development and social progress of its African member
countries; Asian Development Bank, established to promote economic growth and
cooperation in Asia and the Far East.
In recent years there have been two key issues influencing the investment
environment and economic conditions of Europe; the creation of the single market
and the emergence of Eastern European economies. Both of these factors have
helped European companies by opening up new markets for growth.
In connection with efforts to create a single market, on January 1, 1999,
eleven of the fifteen member countries of the European Union began conversion of
their existing sovereign currencies to a new common currency, the euro. For the
first three years, the euro will be a phantom currency (only an accounting
entry). Euro notes and coins will begin circulating in year 2002. The euro is
expected to reshape financial markets, banking systems and monetary policies in
Europe and other parts of the world. Financial transactions and market
information, including share quotations and company accounts, in participating
countries will be denominated in euros. Monetary policy for participating
countries will be uniformly managed by a new central bank, the European Central
Bank (ECB).
Although the initial phase of the introduction of the euro has already
occurred, there remain uncertainties that will continue for some time such as
the applicable conversion rate and whether the payment, valuation and
operational systems of banks and financial institutions will operate reliably;
the ability of clearing and settlement systems to process transactions; the
effects of the euro on European financial and commercial markets; and the effect
of new legislation and regulations to address euro-related issues. The process
of implementing the euro may likely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax consequences. The transition
to the euro is likely to have a significant impact on fiscal and monetary policy
in the participating countries and may produce unpredictable effects on trade
and commerce generally. These uncertainties could cause increased volatility in
financial markets world-wide.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into a forward foreign currency contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar price of
the security ("transaction hedge"). Additionally, for example, when the Fund
believes that a foreign currency may suffer a substantial decline against the
U.S. dollar, it may enter into a forward sale contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). In this situation, the Fund may, in the
alternative, enter into a forward contract to sell a different foreign currency
for a fixed U.S. dollar amount where the Fund
B-8
<PAGE> 40
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedge").
The Fund's custodian will place cash or liquid securities in a segregated
account having a value equal to the aggregate amount of the Fund's commitments
under forward contracts. If the value of the securities placed in the segregated
account declines, additional cash or liquid securities are placed in the account
on a daily basis so that the value of the account equals the amount of the
Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the forward contract
price, or the Fund may purchase a put option permitting the Fund to sell the
amount to foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into such contracts.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), including
the principal components or the interest components issued by the U.S.
government under the Separate Trading of Registered Interest and Principal of
Securities program (i.e., "STRIPS"), all of which are backed by the full faith
and credit of the United States; and (2) obligations issued or guaranteed by
U.S. government agencies or instrumentalities, including government issued or
guaranteed mortgage-backed securities, some of which are backed by the full
faith and credit of the U.S. Treasury, some of which are supported by the right
of the issuer to borrow from the U.S. government and some of which are backed
only by the credit of the instrumentality. U.S. government securities are
considered among the most creditworthy of fixed-income investments; however, the
yields on U.S. government securities generally are lower than yields available
from corporate debt securities.
Treasury Inflation-Protected Securities. The Fund may invest in U.S.
Treasury inflation-protected securities ("TIPS") that are designed to provide an
investment vehicle that is not vulnerable to inflation. The coupon interest rate
as a percentage of principal for these securities is established in an open
auction process and then remains constant over the life of the security. The
principal value rises or falls semi-annually based upon changes in the Consumer
Price Index. If inflation occurs, the principal and interest payments on TIPS
are adjusted to protect investors from inflationary loss. If deflation occurs,
the principal and interest payments will be adjusted downward, although the
principal will not fall below its face amount at maturity. Holders of TIPS are
taxed on the interest income received, as well as on the increase in principal
that is due to the inflation adjustment. As a result, the after-tax annual yield
on TIPS is lower than the after-tax annual yield on a fixed-principal Treasury
security of the same maturity. TIPS are expected to show less market risk/price
volatility as interest rates rise and fall than a fixed-principal Treasury
B-9
<PAGE> 41
security of the same maturity. Even though TIPS should experience less market
volatility than regular fixed-principal instruments, they should not be viewed
as a surrogate for a money market instrument or other cash equivalents.
MORTGAGE-BACKED SECURITIES
"Mortgage-Backed Securities" are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. There are currently three basic types of
Mortgage-Backed Securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) securities; (ii) those
issued by private issuers that represent an interest in or are collateralized by
Mortgage-Backed Securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
Mortgage-Backed Securities without a government guarantee but usually having
some form of private credit enhancement.
Mortgage-Backed Securities may represent an undivided ownership interests
in pools of mortgages. The mortgages backing these securities may include
conventional 30-year fixed rate mortgages, 15-year fixed rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The U.S. government
or the issuing agency guarantees the payment of the interest on and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Fund's shares.
These securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the principal
amounts of such underlying mortgages may generally be prepaid in whole or in
part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-Backed Securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. The remaining maturity of a
Mortgage-Backed Security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Adviser on the basis of
assumed prepayment rates with respect to such mortgages. The remaining expected
average life of a pool of mortgages underlying a Mortgage-Backed Security is a
prediction of when the mortgages will be repaid and is based upon a variety of
factors such as the demographic and geographic characteristics of the borrowers
and the mortgaged properties, the length of time that each of the mortgages has
been outstanding, the interest rates payable on the mortgages and the current
interest rate environment. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.
The yield characteristics of Mortgage-Backed Securities differ from
traditional debt securities. Among the major differences are that interest and
principal prepayments are
B-10
<PAGE> 42
made more frequently, usually monthly, and that principal may be prepaid at any
time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases such a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Stripped Mortgage-Backed Securities (defined herein) are highly sensitive to
changes in prepayment and interest rates.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-Backed
Securities, like traditional debt securities, may decrease in value as a result
of increases in interest rates; however, Mortgage-Backed Securities may be more
susceptible to further declines in value during periods of rising interest rates
than traditional debt securities because of extension risk (i.e. rising interest
rates could cause property owners to prepay their mortgages more slowly than
expected when the security was purchased by the Fund which may further reduce
the market value of such security and lengthen the expected life of the
security). In addition, Mortgage-Backed Securities tend to benefit less than
traditional debt securities from declining interest rates because of the risk of
prepayment (i.e. underlying mortgages often get prepaid faster than expected in
periods of declining interest rates).
The Fund's yield may also be affected by the yields on instruments in which
the Fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.
During periods of declining interest rates, prepayment of mortgages
underlying Mortgage-Backed Securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Fund reinvests the prepaid amounts in
other income producing securities, the yields of which reflect interest rates
prevailing at the time. Therefore, the Fund's ability to maintain a portfolio of
high-yielding Mortgage-Backed Securities will be adversely affected to the
extent that prepayments of mortgages must be reinvested in securities which have
lower yields than the prepaid Mortgage-Backed Securities. Moreover, prepayments
of mortgages which underlie securities purchased by the Fund at a premium would
result in capital losses.
Guaranteed Mortgage Pass-Through Securities. The Fund may invest in
mortgage pass-through securities representing participation interest in pools of
residential mortgage loans originated by U.S. governmental or private lenders or
guaranteed, to the extent provided in such securities, by the U.S. government or
one of its agencies or instrumentalities. Mortgage pass-through securities
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any
B-11
<PAGE> 43
prepayment) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The guaranteed mortgage pass-through securities that the Fund may invest in
include those issued or guaranteed by GNMA, FNMA and FHLMC. Each of GNMA, FNMA
and FHLMC guarantee timely distributions of interest to security holders. GNMA
and FNMA also guarantee timely distribution of scheduled principal. FHLMC
guarantees only ultimate collection of principal on the underlying loans, which
collection may take up to one year. The Fund may also invest in other agency
securities, including but not limited to securities issued by the Small Business
Administration, Export-Import Bank of the United States, Federal Housing
Administration, Farm Credit Administration, Federal Home Loan Banks, General
Services Administration, U.S. Department of Transportation, U.S. Department of
Housing and Urban Development, and Student Loan Marketing Association. These
securities generally are not backed by the full faith and credit of the United
States.
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the GNMA, FNMA
and FHLMC mortgage pass-through securities described above and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Private Pass-Throughs constituting ARMS
are backed by a pool of conventional adjustable rate mortgage loans. Since
Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of GNMA, FNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement.
GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or guaranteed by the Veteran's Administration under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any guarantee. In order to meet its obligations
under such guarantee, GNMA is authorized to borrow from the U.S. Treasury with
no limitations as to amount.
GNMA Certificates will represent a pro rata interest in one or more pools
of the following types of mortgage loans: (i) fixed rate level payment mortgage
loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed rate
growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be
B-12
<PAGE> 44
FHA Loans or VA Loans and, except as otherwise specified above, will be
fully-amortizing loans secured by first liens on one- to four-family housing
units.
FNMA Certificates. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to purchase
home mortgage loans from many capital market investors that may not ordinarily
invest in mortgage loans directly, thereby expanding the total amount of funds
available for housing.
Each FNMA Certificate will entitle the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the U.S. government.
Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed rate loans secured by multifamily projects.
FHLMC Certificates. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the "FHLMC Act"). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily FHLMC Certificates.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest at the rate provided for by such FHLMC Certificate,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC Certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on account
of its guarantee of collection of principal at any time after default on an
underlying mortgage loan, but not later than 30 days following (i) foreclosure
sale, (ii) payment of a claim by any mortgage insurer, or (iii) the expiration
of any right of redemption, whichever occurs later, but in any event no later
than one year after demand has been made upon the mortgagor for accelerated
payment of
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principal. The obligation of FHLMC under its guarantee are obligations solely of
FHLMC and are not backed by the full faith and credit of the U.S. government.
FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a "FHLMC Certificate group") purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC Certificate
group.
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities.
Collateralized mortgage obligations ("CMOs") are debt obligations which are
secured by mortgage loans or other mortgage-backed securities (such collateral
is collectively hereinafter referred to as "Mortgage Assets"). Multiclass
pass-through securities are equity interests in a trust composed of Mortgage
Assets. Unless the context indicates otherwise, all references herein to CMOs
include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit (a "REMIC"). All future references to CMOs
shall also be deemed to include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," may be issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the underlying Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrues on all classes of a CMO
on a monthly, quarterly or semi-annual basis. The principal of and interest on
the Mortgage Assets may be allocated among the several classes of a series of a
CMO in many ways. By investing in particular tranches of a CMO with specified
cash flows, the Fund may gain more predictability of cash flows than if it had
invested in the underlying Mortgage Assets. Generally, the more predictable the
cash flow of a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities. As part of the process of creating more predictable
cash flows on most of the tranches in a series of CMOs, one or more tranches
generally must be created that absorb most of the volatility in the cash flows
on the underlying Mortgage Assets. The yields on these tranches are generally
higher than prevailing market yields on mortgage-backed securities with similar
average lives. Because of the uncertainty of the cash flows on these tranches,
and the sensitivity thereof to changes in prepayment rates on the underlying
Mortgage Assets, the market prices of and yield on these tranches tend to be
more volatile.
One or more tranches of a CMO may have coupon rates which reset
periodically at a specified increment over an index such as LIBOR. These
adjustable rate tranches are
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<PAGE> 46
known as "floating rate CMOs," "inverse floating CMOs" and "interest only CMOs".
Floating rate CMOs may be backed by fixed rate or adjustable rate mortgages; to
date, fixed rate mortgages have been more commonly utilized for this purpose.
Floating rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable rate mortgages, represent
a ceiling beyond which the coupon rate on a floating rate CMO may not be
increased regardless of increases in the interest rate index to which the
floating rate CMO is geared. Inverse floating rate CMOs pay interest at rates
that vary inversely with changes in market rates of interest and may pay a rate
of interest determined by applying a multiple to the floating rate. Accordingly,
when market rates of interest decrease, the change in value of inverse floating
CMOs owned by the Fund will have a positive effect on the net asset value of the
Fund and when market rates of interest increase, the change in value of inverse
floating rate CMOs owned by the Fund will have a negative effect on the net
asset value of the Fund. In addition, the extent of increases and decreases in
the net asset value of the Fund in response to changes in market rates of
interest generally will be larger than comparable changes in the net asset value
of the Fund if the Fund held an equal principal amount of a fixed rate CMO
security having similar credit quality, redemption provisions and maturity.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date.
In reliance on an SEC interpretation, the Fund's investment in certain
qualifying collateralized mortgage obligations (CMOs), including CMOs that have
elected to be treated as Real Estate Mortgage Investment Conduits (REMICs), are
not subject to the 1940 Act's limitation on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
the CMOs and REMICs must be unmanaged, fixed-asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue redeemable securities,
(c) operate under general exemptive orders exempting them from all provisions of
the 1940 Act, and (d) are not registered or regulated under the 1940 Act as
investment companies. To the extent that the Fund selects CMOs or REMICs that do
not meet the above requirements, the Fund may not invest more than 10% of its
assets in all such entities and may not acquire more than 3% of the voting
securities of any single such entity.
Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities
are derivative multi-class mortgage securities. Stripped Mortgage-Backed
Securities may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
Mortgage-Backed Securities issued by parties other than agencies or
instrumentalities of the U.S. government are considered, under current
guidelines of the staff of the SEC, to be illiquid securities.
Stripped Mortgage-Backed Securities are generally structured with two
classes that receive different proportions of the interest and principal
distributions on a pool of
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<PAGE> 47
mortgage assets. A common type of Stripped Mortgage-Backed Securities will have
one class receiving a small portion of the interest and a larger portion of the
principal from the mortgage assets, while the other classes will receive
primarily interest and only a small portion of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on IOs and POs are
especially sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and principal payments may have a
material effect on yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may not
fully recoup its initial investment in IOs. Conversely, if the underlying
mortgage assets experience less than anticipated prepayments of principal, the
yield on POs could be materially adversely affected. The market value of such
Stripped Mortgage-Backed Securities, including adjustable rate U.S. government
IOs, are subject to greater risk of fluctuation in response to changes in market
interest rates than other adjustable rate securities, and such greater risk of
fluctuation may adversely affect the ability of the Fund to maintain a
relatively stable net asset value.
Types of Credit Support. To lessen the effect of failures by obligors on
underlying mortgages to make payments, certain Mortgage-Backed Securities may
contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Fund will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.
The ratings of securities for which third-party credit enhancement provides
liquidity protection or protection against losses from default are generally
dependent upon the continued creditworthiness of the enhancement provider. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment on the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets. Other
information which may be considered
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<PAGE> 48
include demographic factors, loan underwriting practices and general market and
economic conditions. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such a security.
Adjustable Rate Mortgage-Backed Securities. Adjustable Rate Mortgage-Backed
Securities are debt securities having interest rates which are adjusted or reset
at periodic intervals ranging, in general, from one month to three years, based
on a spread over a specific interest rate or interest rate index. There are
three main categories of indices: (i) those based on U.S. government securities,
(ii) those derived from a calculated measure such as a cost of funds index and
(iii) those based on a moving average of interest rates, including mortgage
rates. Commonly utilized indices include, for example, the One Year Constant
Maturity Treasury Index, the London Interbank Offered Rate (LIBOR), the Federal
Home Loan Bank Cost of Funds, the prime rate and commercial paper rates.
Adjustable rate securities allow the Fund to participate in increases in
interest rates through periodic upward adjustments of the coupon rates of such
securities, resulting in higher yields. During periods of declining interest
rates, however, coupon rates may readjust downward resulting in lower yields to
the Fund. During periods of rising interest rates, changes in the coupon rate of
adjustable rate securities will lag behind changes in the market interest rate,
which may result in such security having a lower value until the coupon resets
to reflect more closely market interest rates. Investors who redeem shares of
the Fund prior to the time the coupon rates of the Fund's portfolio securities
are adjusted could suffer some loss on their investment in the Fund's shares.
Adjustable rate securities typically limit the maximum amount the coupon rate
may be adjusted during any adjustment period, in any one year and during the
term of the security. During periods of significant fluctuations in market rates
of interest the net asset value of the Fund may fluctuate more significantly
since these limits may prevent the Fund's portfolio securities from fully
adjusting to reflect market rates.
The Fund may invest in adjustable rate securities with interest rates that
adjust or vary inversely to changes in market interest rates. Such securities,
which are referred to as "inverse floating obligations," provide opportunities
for high current income, but the market value of such securities may be more
volatile in response to changes in market interest rates. Certain of such
inverse floating obligations have coupon rates that adjust to changes in market
interest rates to a greater degree than the change in the market rate and
accordingly have investment characteristics similar to investment leverage. As a
result, the market value of such inverse floating obligations are subject to
greater risk of fluctuation than other adjustable rate securities which do not
vary inversely to changes in market interest rates, and such greater risk of
fluctuation may adversely affect the ability of the Fund to maintain a
relatively stable net asset value.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. The
Fund's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Fund's portfolio excluding all securities whose maturities at acquisition
were
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<PAGE> 49
one year or less) is shown in the table of "Financial Highlights" in the
Prospectus. A high portfolio turnover rate (100% or more) increases the Fund's
transaction costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Adviser deems portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY
The Fund's policy generally is to invest in a global portfolio of longer
term debt securities. In the interest of preserving shareholders' capital and
consistent with the Fund's investment objectives, the Adviser may employ a
temporary defensive investment strategy if it determines such a strategy to be
warranted. Under a defensive strategy, the Fund may hold cash (United States
dollars or foreign currencies) or invest a portion or all of its assets in high
quality money-market instruments. It is impossible to predict when or for how
long the Fund will employ defensive strategies. Money-market instruments in
which the Fund may invest include, but are not limited to, the following
instruments of United States or foreign issuers: government securities;
commercial paper; bank certificates of deposit and bankers' acceptances; and
repurchase agreements related to any of the foregoing. The Fund will only
purchase commercial paper if it is rated Prime-1 or Prime-2 by Moody's or A-1 or
A-2 by S&P or, if not rated, is considered by the Adviser to be of equivalent
quality. In addition, for temporary defensive reasons, such as during times of
international political or economic uncertainty, most or all of the Fund's
investments may be made in the United States and denominated in United States
dollars.
Under such a temporary defensive strategy, the Fund would invest at least
25% of its assets in securities issued by banks. Such investments may include
certificates of deposit, time deposits, bankers' acceptances, and obligations
issued by bank holding companies, as well as repurchase agreements entered into
with banks. In such event, the Fund would have greater exposure to the risk
factors which are characteristic of such investments. In particular, the value
of and investment return on the Fund's shares would be affected by economic or
regulatory developments in or related to the banking industry. Sustained
increases in interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. The banking industry is
also subject to the effects of the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or high
technology-related companies; concentration of loan portfolios in lesser
developed country loans and highly leveraged transaction loans; national and
local regulation; and competition within those industries as well as with other
types of financial institutions. In addition, the Fund's investments in
commercial banks located in several foreign countries are subject to additional
risks due to the combination in such banks of commercial banking and diversified
securities activities.
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OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may, but is not required to, use various investment strategies as
described below to earn income, facilitate portfolio management, and mitigate
risks. Such strategies are generally accepted under modern portfolio management
and are regularly used by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, 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. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated account with the Fund's custodian cash or liquid
securities in an amount not less than the market value of the underlying
security, marked to market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a 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 sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is lesser (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that
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<PAGE> 51
series, but there is no assurance that such a market will exist, particularly in
the case of over-the-counter options, since they can be closed out only with the
other party to the transaction. Alternatively, the Fund could purchase an
offsetting option, which would not close out its position as a seller, but would
provide an asset of equal value to its obligation under the option sold. If the
Fund is not able to enter into a closing purchase transaction or to purchase an
offsetting option with respect to an option it has sold, it will be required to
maintain the securities subject to the call or the collateral securing the
option until a closing purchase transaction can be entered into (or the option
is exercised or expires) even though it might not be advantageous to do so. Such
options may be considered illiquid and subject to the Fund's limitation on
illiquid securities.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect 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.
Put options may be purchased to protect against anticipated declines in the
market value of either specific portfolio securities or of the Fund's assets
generally. Alternatively, put options may 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.
SPECIAL RISKS ASSOCIATED WITH U.S. GOVERNMENT SECURITIES OPTIONS
Treasury Bonds and Notes. Because trading interests in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of bonds or notes will thus be phased out as new options are
listed on more
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recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its custodian so that it will be
treated as being covered.
Mortgage-Related Securities. The following special considerations will be
applicable to options on mortgage-related securities. Currently such options are
only traded over-the-counter. Since the remaining principal balance of a
mortgage-related security declines each month as a result of mortgage payments,
the Fund as a writer of a mortgage-related call holding mortgage-related
securities as "cover" to satisfy its delivery obligation in the event of
exercise may find that the mortgage-related securities it holds no longer have a
sufficient remaining principal balance for this purpose.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase and write options on foreign currencies in a manner
similar to that in which forward contracts or futures contracts on foreign
currencies will be utilized. In order to protect against diminutions in the
value of portfolio securities, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies. For example, where the
Fund anticipates a decline in the dollar value of foreign currency denominated
securities due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of portfolio securities will be offset by the amount of the
premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and
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<PAGE> 53
allow the Fund to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash or liquid securities
in a segregated account with its custodian.
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.
The Fund also intends to write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is not covered, but is designed to provide a hedge against a
decline in the U.S. dollar value of a security which the Fund owns or has the
right to acquire and which is denominated in the currency underlying the option
due to an adverse change in the exchange rate. In such circumstances, the Fund
collateralizes the option by maintaining in a segregated account
B-22
<PAGE> 54
with the Fund's custodian, cash or liquid securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked to market
daily.
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."
The Fund may enter into contracts for the purchase or sale for future
delivery of securities or foreign currencies, or contracts based on financial
indices including any index of U.S. government securities, foreign government
securities or corporate debt securities. An index futures contract is an
agreement pursuant to which a party agrees to take or make delivery of an amount
of cash equal to a specified dollar amount multiplied by the difference between
the index value at a specified time and the price at which the futures contract
originally was struck. No physical delivery of the underlying securities in the
index is made. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Fund may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association modified pass-through mortgage-related securities and three-month
U.S. Treasury Bills. The Fund may also enter into futures contracts which are
based on bonds issued by entities other than the U.S. government.
Currently, index futures contracts can be purchased with respect to several
indices on various exchanges. Differences in the securities included in the
indices may result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged. An interest rate futures
contract is an agreement pursuant to which a party agrees to take or make
delivery of a specified debt security (such as U.S. Treasury bonds or notes) at
a specified future time and at a specified price. The Fund also may invest in
foreign index futures traded outside the United States which involve additional
risks including fluctuations in foreign exchange rates, foreign currency
exchange controls, political and economic instability, differences in financial
reporting and securities regulation and trading, and foreign taxation issues.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) 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
B-23
<PAGE> 55
and from the broker, called variation margin, are 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 purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the underlying security or index declines, the position is less
valuable, and the Fund is required to make a variation margin payment to the
broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provides an alternative to the liquidation of securities positions in the
Fund. Ordinarily transaction costs associated with futures transactions are
lower than transaction costs that would be incurred in the purchase and sale of
the underlying securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts. These include the risk of imperfect
correlation between movements in the price of the futures contracts and of the
underlying securities, currency or index; the risk of market distortion; the
illiquidity risk; and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities
B-24
<PAGE> 56
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 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 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 the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described
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<PAGE> 57
above, 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.
The Fund will not enter into futures contracts or options transactions
(except for closing transactions) other than for bona fide hedging purposes if,
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceed 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase of
futures contracts by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option 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 purposes as, the sale of 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 the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contracts.
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 Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security or index, 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, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions
B-26
<PAGE> 58
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.
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 or losses in liquidating open positions purchased or incur a
loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
Unlike transactions entered into by the Fund in futures contracts, options
on foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, subject to SEC
regulation. Similarly, options on currencies may be traded over-the-counter. In
an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could, therefore,
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the option writer
and a trader of forward contracts could lose amounts substantially in excess of
their initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the Fund
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or
B-27
<PAGE> 59
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political and economic factors, (ii) lesser availability
than in the United States of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States and (v) lesser trading volume.
FORWARD COMMITMENTS
Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash or liquid securities (which
may have maturities which are longer than the term of the Forward Commitment)
with the Fund's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase continues. Since the market
value of both the securities or currency subject to the Forward Commitment and
the securities or currency held in the segregated account may fluctuate, the use
of Forward Commitments may magnify the impact of interest rate changes on the
Fund's net asset value.
A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities or currency subject to the Forward Commitment.
A Forward Commitment sale is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in value of a security or
currency which the Fund owns or has the right to acquire. In either
circumstance, the Fund maintains in a segregated account (which is marked to
market daily) either the security or currency covered by the Forward Commitment
or cash or liquid securities (which may have maturities which are longer than
the term of the Forward Commitment) with the Fund's custodian in an aggregate
amount equal to the amount of its commitment as long as the obligation to sell
continues. By entering into a Forward Commitment sale transaction, the Fund
forgoes or reduces the potential for both gain and loss in the holding which is
being hedged by the Forward Commitment sale.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting securities which is defined by the 1940 Act as the lesser of
(i) 67% or more of the voting securities present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy; or (ii) more than 50% of the Fund's outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. With
respect to the limitations on illiquid securities and borrowings, the percentage
limitations apply at the time of purchase and on an ongoing basis. 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 U.S. 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 except that, if the value
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<PAGE> 60
of securities owned by the Fund with remaining maturities of less than
13 months exceeds 35% of the value of the Fund's total assets, the Fund
will invest at least 25% of its assets in securities issued by banks.
Although this policy is not applicable to securities issued by
government or political subdivisions because such issues are not
members of any industry, the Fund does not intend to invest more than
25% of its total assets in the securities issued or guaranteed by any
government (except U.S. government, its agencies or instrumentalities).
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 10% 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) U.S. 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.
5. 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.
6. 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.
7. 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.
8. Make investments for the purpose of exercising control or management
although the Fund retains the right to vote securities held by it,
except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.
9. Invest in 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.
B-29
<PAGE> 61
10. 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".
11. Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
offsetting purchase transactions with respect to such options, (b)
purchase and sell options to the extent that the premiums paid for all
such options owned at any time do not exceed ten percent of its total
assets and (c) engage in transactions in interest rate futures
contracts and related options provided that such transactions are
entered into for bona fide hedging purposes (or that the underlying
commodity value of the Fund's long positions do not exceed the sum of
certain identified liquid investments as specified in CFTC
regulations), provided further that the aggregate initial margin and
premiums do not exceed 5% of the fair market value of the Fund's total
assets, and provided further that the Fund may not enter into net
aggregate long and short futures contracts or related options if more
than 50% of the Fund's total assets would be so invested.
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 securities issued by other investment
companies except as part of a merger, reorganization or other
acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act.
2. The Fund may not invest more than 5% of its net assets in warrants or
rights valued at the lower of cost or market, nor more than 2% of its
net assets in warrants or rights (valued on such basis) which are not
listed on the New York Stock Exchange or American Stock Exchange.
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 1/2 of 1% of the
outstanding securities of such company, and such officers and trustees
who own more than 1/2 of 1% own in the aggregate more than 5% 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.
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<PAGE> 62
5. The Fund may not invest more than 5% of its total assets in securities
of unseasoned issuers which have been in operation directly or through
predecessors for less than three years, except that the Fund may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
6. The Fund may not purchase or otherwise acquire any security if, as a
result, more than 10% 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 Rule 144A under 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.
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<PAGE> 63
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of
1632 Morning Mountain Road the funds in the Fund Complex. Co-founder,
Raleigh, NC 27614 and prior to August 1996, Chairman, Chief
Date of Birth: 07/14/32 Executive Officer and President, MDT
Corporation (now known as Getinge/Castle,
Inc., a subsidiary of Getinge Industrier AB),
a company which develops, manufactures,
markets and services medical and scientific
equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological
Barrington Place, Building 4 company. Trustee/Director of each of the
18 E. Dundee Road, Suite 101 funds in the Fund Complex. Prior to January
Barrington, IL 60010 1999, Chairman and Chief Executive Officer of
Date of Birth: 09/16/38 The Allstate Corporation ("Allstate") and
Allstate Insurance Company. Prior to January
1995, President and Chief Executive Officer
of Allstate. Prior to August 1994, Mr. Choate
held various management positions at
Allstate.
</TABLE>
B-32
<PAGE> 64
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc. and a member of the Morgan
Stanley Dean Witter Management Committee.
Trustee of the TCW/DW Funds, Director of the
Morgan Stanley Dean Witter Funds and
Trustee/Director of other funds in the Fund
Complex. Prior to March 1999, Chairman, Chief
Executive Officer, President and Director of
Morgan Stanley Dean Witter Distributors, Inc.
Prior to January 1999, Chairman of Dean
Witter Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, President and Chief Operating
Officer of Morgan Stanley Dean Witter
Individual Asset Management and Director of
Morgan Stanley Dean Witter Trust FSB.
Formerly Vice Chairman of the Board of the
National Association of Securities Dealers,
Inc. and Chairman of the Board of the Nasdaq
Stock Market, Inc.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Trustee/Director of
233 South Wacker Drive each of the funds in the Fund Complex. Prior
Suite 7000 to 1997, Partner, Ray & Berndtson, Inc., an
Chicago, IL 60606 executive recruiting and management
Date of Birth: 06/03/48 consulting firm. Formerly, Executive Vice
President of ABN AMRO, N.A., a Dutch bank
holding company. Prior to 1992, Executive
Vice President of La Salle National Bank.
Trustee on the University of Chicago
Hospitals Board, Vice Chair of the Board of
The YMCA of Metropolitan Chicago and a member
of the Women's Board of the University of
Chicago. Prior to 1996, Trustee of The
International House Board.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Trustee/Director of
Washington, D.C. 20016 each of the funds in the Fund Complex.
Date of Birth: 02/29/52 Formerly, advisor to the Dennis Trading Group
Inc. Prior to 1992, President and Chief
Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation,
a private foundation.
</TABLE>
B-33
<PAGE> 65
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President and owner, Nelson Investment
423 Country Club Drive Planning Services, Inc., a financial planning
Winter Park, FL 32789 company and registered investment adviser.
Date of Birth: 02/13/36 President and owner, Nelson Ivest Brokerage
Services Inc., a member of the National
Association of Securities Dealers, Inc. and
Securities Investors Protection Corp.
Trustee/Director of each of the funds in the
Fund Complex.
Don G. Powell*............................ Currently a member of the Board of Governors
2800 Post Oak Blvd. and Executive Committee for the Investment
Houston, TX 77056 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Trustee/ Director of certain
open-end investment companies in the Fund
Complex and Trustee/Managing General Partner
of other funds advised by the Advisers or Van
Kampen Management Inc. Immediate past
Chairman of the Investment Company Institute.
Prior to January 1999, Chairman and Director
of Van Kampen Investments, the Advisers, the
Distributor, and Investor Services and
Director or officer of certain other
subsidiaries of Van Kampen Investments. Prior
to July 1998, Director and Chairman of VK/AC
Holding, Inc. (predecessor of Van Kampen
Investments). Prior to November 1996,
President, Chief Executive Officer and
Director of VK/AC Holding, Inc. (predecessor
of Van Kampen Investments).
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Trustee/ Director
of each of the funds in the Fund Complex.
Prior to 1998, Director of Stone Smurfit
Container Corp., a paper manufacturing
company. Formerly, President, Chief Executive
Officer and Chief Operating Officer of Waste
Management, Inc., an environmental services
company.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>
B-34
<PAGE> 66
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.
Suzanne H. Woolsey, Ph.D.................. Chief Operating Officer of the National
2101 Constitution Ave., N.W. Academy of Sciences/National Research
Room 206 Council, an independent, federally chartered
Washington, D.C. 20418 policy institution. Director of Neurogen
Date of Birth: 12/27/41 Corporation, a pharmaceutical company.
Director and former Chairman of the German
Marshall Fund of the United States Trustee of
Colorado College, Vice Chair of the Board of
the Council for Excellence in Government.
Trustee/Director of each of the funds in the
Fund Complex. Prior to 1993, Executive
Director of the Commission on Behavioral and
Social Sciences and Education at the National
Academy of Sciences/ National Research
Council. Prior to 1989, Partner of Coopers &
Lybrand.
Paul G. Yovovich.......................... Private investor. Director of 3Com
Sears Tower Corporation, which provides information
233 South Wacker Drive access products and network system solutions,
Suite 9700 COMARCO, Inc., a wireless communications
Chicago, IL 60606 products company and APAC Customer Services,
Date of Birth: 10/29/53 Inc., a provider of outsourced customer
contact services. Trustee/Director of each of
the funds in the Fund Complex. Prior to May
1996, President of Advance Ross Corporation,
an international transaction services and
pollution control equipment manufacturing
company.
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
current or former positions with Morgan Stanley Dean Witter or its affiliates.
B-35
<PAGE> 67
OFFICERS
Messrs. Powers, McDonnell, Smith, Hegel, Sullivan, Wood and Wetherell are
located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. The
Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Richard F. Powers III................ Chairman, Director, President and Chief Executive
Date of Birth: 02/02/46 Officer of Van Kampen Investments. Chairman,
President Director and Chief Executive Officer of the
Advisers, the Distributor, Van Kampen Advisors
Inc. and Van Kampen Management Inc. Director and
Officer of certain other subsidiaries of Van
Kampen. President of each of the Funds in the
Fund Complex. Prior to May 1998, Executive Vice
President and Director of Marketing at Morgan
Stanley Dean Witter and Director of Dean Witter
Discover & Co. and Dean Witter Realty. Prior to
1996, Director of Dean Witter Reynolds Inc.
Dennis J. McDonnell.................. Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
Executive Vice President and Chief Officer and Director of the Advisers, Van Kampen
Investment Officer Advisors Inc., and Van Kampen Management Inc.
Chief Investment Officer and Executive Vice
President of each of the funds in the Fund
Complex. Chief Investment Officer, Executive Vice
President and Trustee/Managing General Partner of
other investment companies advised by the
Advisers or Van Kampen Management Inc. Prior to
July 1998, Director and Executive Vice President
of VK/AC Holding, Inc. (predecessor of Van Kampen
Investments). Prior to April 1998, President and
Director of Van Kampen Merritt Equity Advisors
Corp. Prior to April 1997, Mr. McDonnell was
Director of Van Kampen Merritt Equity Holdings
Corp. Prior to September 1996, Mr. McDonnell was
Chief Executive Officer and Director of MCM
Group, Inc. and McCarthy, Crisanti & Maffei, Inc.
a financial research firm, and Chairman and
Director of MCM Asia Pacific Company, Limited and
MCM (Europe) Limited.
</TABLE>
B-36
<PAGE> 68
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
A. Thomas Smith III.................. Executive Vice President, General Counsel,
Date of Birth: 12/14/56 Secretary and Director of Van Kampen Investments,
Vice President and Secretary the Advisers, Van Kampen Advisors Inc., Van
Kampen Management Inc., the Distributor, American
Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services
Inc., Investor Services, Van Kampen Insurance
Agency of Illinois Inc. and Van Kampen System
Inc. Vice President and Secretary of each of the
funds in the Fund Complex. Vice President and
Secretary/Vice President, Principal Legal Officer
and Secretary of other investment companies
advised by the Advisers or their affiliates.
Prior to January 1999, counsel to New York Life
Insurance Company ("New York Life"), and prior to
March 1997, Vice President and Associate General
Counsel of New York Life. Prior to December 1993,
Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior
Associate, Willkie Farr & Gallagher. Prior to
January 1989, Mr. Smith was a Staff Attorney at
the Securities and Exchange Commission, Division
of Investment Management, Office of Chief
Counsel.
Michael H. Santo..................... Executive Vice President, Chief Administrative
Date of Birth: 10/22/55 Officer and Director of Van Kampen Investments,
Vice President the Advisers, the Distributor, Van Kampen
Advisors Inc., Van Kampen Management Inc. and Van
Kampen Investor Services Inc. Director or Officer
of certain other subsidiaries of Van Kampen.
Prior to 1998, Senior Vice President and Senior
Planning Officer for Individual Asset Management
of Morgan Stanley Dean Witter and its
predecessor. Vice President of each of the funds
in the Fund Complex and certain other investment
companies advised by the Advisers and their
affiliates.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Vice President of each of the funds in the
Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of
McCarthy, Crisanti & Maffei, Inc, a financial
research company.
</TABLE>
B-37
<PAGE> 69
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Stephen L. Boyd...................... Vice President and Chief Investment Officer for
Date of Birth: 11/16/40 equity investments at the Advisers. Vice
Vice President President of each of the funds in the Fund
Complex and certain other investment companies
advised by the Advisers or their affiliates.
Prior to October 1998, Vice President and Senior
Portfolio Manager with AIM Capital Management,
Inc. Prior to February 1998, Senior Vice
President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments
Date of Birth: 08/20/55 and the Advisers. Chief Financial Officer, Vice
Vice President, Chief Financial President and Treasurer of each of the funds in
Officer and Treasurer the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and other
Officer investment companies advised by the Advisers or
their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior
Vice President Vice President and Chief Operating Officer of the
Distributor. Vice President of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the
Controller Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Weston B. Wetherell.................. Vice President, Deputy General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Management Inc. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the
Fund Complex and Assistant Secretary/Legal
Officer and Assistant Secretary of other
investment companies advised by the Advisers or
their affiliates.
</TABLE>
B-38
<PAGE> 70
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Sara L. Badler....................... Senior Vice President, Deputy General Counsel and
Date of Birth: 10/12/60 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Management Inc. and Van Kampen Advisors Inc.
Assistant Secretary of each of the Funds in the
Fund Complex. Prior to September 1999, Associate
General Counsel of New York Life Insurance
Company and Secretary of the MainStay
Institutional Funds, MainStay VP Series Fund Inc.
and The MainStay Funds.
Michael Robert Sullivan.............. Assistant Vice President of Van Kampen
Date of Birth: 03/30/33 Investments, the Advisers and Van Kampen
Assistant Controller Management Inc. Assistant Controller of each of
the funds in the Fund Complex and other
investment companies advised by the Advisers or
their affiliates.
Jacqueline F. Dentner................ Assistant Vice President of the Adviser. She is a
Date of Birth: 08/12/65 Certified Internal Auditor. Prior to July 1998,
Assistant Treasurer Manager of Risk Assessment and Internal Audit for
The Vanguard Group of Investment Companies.
Assistant Treasurer of each of the funds in the
Fund Complex and certain other investment
companies advised by the Advisers and their
affiliates.
James M. Dykas....................... Assistant Vice President of the Adviser.
Date of Birth: 01/25/66 Assistant Treasurer of each of the funds in the
Assistant Treasurer Fund Complex and certain other investment
companies advised by the Advisers and their
affiliates.
</TABLE>
Each trustee/director who is not an affiliated person of Van Kampen
Investments, the Advisers or the Distributor (each a "Non-Affiliated Trustee")
holds the same position with each of the funds in the Fund Complex. Messrs.
DeMartini and Powell hold the same position with each of the Funds in the Fund
Complex except for the Van Kampen Technology Fund. As of the date of this
Statement of Additional Information, there are 66 operating funds in the Fund
Complex. Each Non-Affiliated Trustee is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex (except the money market series of the Van Kampen Series Fund,
Inc.) provides a deferred compensation plan to its Non-Affiliated Trustees that
allows trustees/directors to defer receipt of their compensation and earn a
return on such deferred amounts. Deferring compensation has the economic effect
as if the Non-Affiliated Trustee reinvested his or her compensation into the
funds. Each fund in the Fund Complex (except the money market series of the Van
Kampen Series Fund, Inc.) provides a retirement plan to its Non-Affiliated
Trustees that provides Non-Affiliated Trustees with compensation after
retirement, provided that certain eligibility requirements are met as more fully
described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first
B-39
<PAGE> 71
business day of each quarter. Payment of the annual retainer is allocated among
the funds in the Fund Complex (except the money market series of the Van Kampen
Series Fund, Inc.) on the basis of the relative net assets of each fund as of
the last business day of the preceding calendar quarter. The compensation of
each Non-Affiliated Trustee includes a per meeting fee from each fund in the
Fund Complex (except the money market series of the Van Kampen Series Fund,
Inc.) in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
B-40
<PAGE> 72
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Fund Complex
-------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Trust(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1991 $1,287 $35,691 $60,000 $125,200
Jerry D. Choate(1) 1999 219 0 60,000 0
Linda Hutton Heagy 1995 1,287 3,861 60,000 112,800
R. Craig Kennedy 1995 1,287 2,652 60,000 125,200
Jack E. Nelson 1995 1,287 18,385 60,000 125,200
Phillip B. Rooney 1997 1,087 6,002 60,000 125,200
Fernando Sisto 1991 1,287 68,615 60,000 125,200
Wayne W. Whalen 1995 1,287 12,658 60,000 125,200
Suzanne H. Woolsey(1) 1999 219 0 60,000 0
Paul G. Yovovich(1) 1998 864 0 60,000 25,300
</TABLE>
- ------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Yovovich became a member of the Board of Trustees for the Fund
and other funds in the Fund Complex on October 22, 1998 and therefore does
not have a full year of information to report. Mr. Choate and Ms. Woolsey
became members of the Board of Trustees for the Fund and other funds in the
Fund Complex on May 26, 1999 and therefore do not have a full year of
information to report.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended May 31, 1999. The
following trustees deferred compensation from the Fund during the fiscal
year ended May 31, 1999: Mr. Branagan, $1,287; Ms. Heagy, $1,287; Mr.
Kennedy, $644; Mr. Nelson, $1,287; Mr. Rooney, $1,087; Mr. Sisto, $644; Mr.
Whalen, $1,287 and Mr. Yovovich, $639. Amounts deferred are retained by the
Fund and earn a rate of return determined by reference to either the return
on the shares of the Fund or other funds in the Fund Complex as selected by
the respective Non-Affiliated Trustee, with the same economic effect as if
such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from the Fund as of the Fund's fiscal year ended
May 31, 1999 is as follows: Mr. Branagan, $4,203; Mr. Caruso, $1,240; Mr.
Gaughan, $200; Ms. Heagy, $4,823; Mr. Kennedy, $3,166; Mr. Miller, $1,612;
Mr. Nelson, $6,768; Mr. Rees, $234; Mr. Robinson, $3,154; Mr. Rooney,
$2,731; Mr. Sisto, $7,162; Mr. Whalen, $5,996; and Mr. Yovovich, $656. The
deferred compensation plan is described above the Compensation Table.
B-41
<PAGE> 73
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the funds' respective fiscal years ended in
1998. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
retirement plan is described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all funds in the Fund Complex as of December 31, 1998 before deferral by
the trustees under the deferred compensation plan. Because the funds in the
Fund Complex have different fiscal year ends, the amounts shown in this
column are presented on a calendar year basis. Certain trustees deferred all
or a portion of their aggregate compensation from the Fund Complex during
the calendar year ended December 31, 1998. The deferred compensation earns a
rate of return determined by reference to the return on the shares of the
funds in the Fund Complex as selected by the respective Non-Affiliated
Trustee, with the same economic effect as if such Non-Affiliated Trustee had
invested in one or more funds in the Fund Complex. To the extent permitted
by the 1940 Act, the Fund may invest in securities of those investment
companies selected by the Non-Affiliated Trustees in order to match the
deferred compensation obligation. The Advisers and their affiliates also
serve as investment adviser for other investment companies; however, with
the exception of Mr. Whalen, the Non-Affiliated Trustees were not trustees
of such investment companies. Combining the Fund Complex with other
investment companies advised by the Advisers and their affiliates, Mr.
Whalen received Total Compensation of $285,825 during the calendar year
ended December 31, 1998.
As of September 1, 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The Fund also
pays distribution fees, service fees, custodian fees, legal and independent
accountant fees, the
B-42
<PAGE> 74
costs of reports and proxies to shareholders, trustees' fees (other than those
who are affiliated persons of the Adviser, Distributor or Van Kampen
Investments) and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any actions or omissions if it acted without willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee computed based upon an annual rate of .75% applied to the average
daily net assets of the Fund.
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with the Subadviser to assist it in performing its investment
advisory functions. Under the Subadvisory Agreement the Subadviser receives a
fee at the annual rate of 50% of the net compensation received by the Adviser.
The Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
the month.
The Advisory Agreement also provides that, in the event the expenses of the
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where the Fund's shares are qualified for sale, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
During the fiscal years ended May 31, 1999, 1998 and 1997, the Adviser
received approximately $441,500, $1,254,494 and $918,419, respectively, in
advisory fees from the Fund.
OTHER AGREEMENTS
Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
to the Fund, which include, maintaining the books and records of the Fund,
calculating the Fund's net asset value and coordinating tax compliance and other
regulatory issues. The Fund pays all costs and expenses related to such
services, including all salary and related benefits of accounting personnel, as
well as the overhead and expenses of office space and the equipment necessary to
render such services. The Fund shares together with the other Van Kampen funds
in the cost of providing such services with 25% of such costs shared
proportionately based on the respective number of classes of securities issued
per fund and
B-43
<PAGE> 75
the remaining 75% of such costs based proportionally on their respective net
assets per fund.
During the fiscal years ended May 31, 1999, 1998 and 1997, Advisory Corp.
received approximately $54,800, $32,000 and $25,800, respectively, in accounting
services fees from the fund.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Trustees who are not
parties to the Distribution and Service Agreement or interested persons of any
party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 90 days'
written notice. Total underwriting commissions on the sale of shares of the Fund
for the last three fiscal periods are shown in the chart below.
<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal year ended May 31, 1999......................... $ 13,500 $ 1,500
Fiscal year ended May 31, 1998......................... $ 19,123 $ 1,942
Fiscal year ended May 31, 1997......................... $ 23,871 $ -0-
</TABLE>
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.......................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........... 2.00% 2.04% 1.75%
$1,000,000 or more.......................... * * *
- ------------------------------------------------------------------------------------------------
</TABLE>
B-44
<PAGE> 76
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund or other
Van Kampen funds. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. All of the foregoing payments are made by the Distributor out of its
own assets. Such fees paid for such services and activities with respect to the
Fund will not exceed in the aggregate 1.25% of the average total daily net
assets of the Fund on an annual basis. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
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<PAGE> 77
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares and sub-agreements between the Distributor and
members of the NASD who are acting as securities dealers and NASD members or
eligible non-members who are acting as brokers or agents and similar agreements
between the Fund and financial intermediaries who are acting as brokers
(collectively, "Selling Agreements") that may provide for their customers or
clients certain services or assistance, which may include, but not be limited
to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the Prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any deferred sales
charges it received. For Class A Shares, to the extent the Distributor is not
fully reimbursed in a given year, there is no carryover of such unreimbursed
amounts to succeeding years. For each of the
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<PAGE> 78
Class B Shares and Class C Shares, to the extent the Distributor is not fully
reimbursed in a given year, any unreimbursed expenses for such class will be
carried forward and paid by the Fund in future years so long as such Plans are
in effect. Except as mandated by applicable law, the Fund does not impose any
limit with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted for on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular Class B Share or Class C
Share may be greater or less than the amount of the initial commission
(including carrying cost) paid by the Distributor with respect to such share. In
such circumstances, a shareholder of a share may be deemed to incur expenses
attributable to other shareholders of such class. As of May 31, 1999, there were
$7,726,370 and $787,906 of unreimbursed distribution-related expenses with
respect to Class B Shares and Class C Shares, respectively, representing 27.89%
and 32.83% of the Fund's net assets attributable to Class B Shares and Class C
Shares, respectively. If the Plans were terminated or not continued, the Fund
would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred sales
charges.
Because the Fund is a series of the Trust, amounts paid to the Distributor
as reimbursement for expenses of one series of the Trust may indirectly benefit
the other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.
For the fiscal year ended May 31, 1999, the Fund's aggregate expenses paid
under the Plans for Class A Shares were $55,748 or 0.25% of the Class A Shares'
average daily net assets. Such expenses were paid to reimburse the Distributor
for payments made to financial intermediaries for servicing Fund shareholders
and for administering the Class A Share Plans. For the fiscal year ended May 31,
1999, the Fund's aggregate expenses paid under the Plans for Class B Shares were
$338,757 or 1.00% of the Class B Shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments: $251,765 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class B Shares of the Fund and $86,992 for fees paid to financial
intermediaries for servicing Class B shareholders and administering the Class B
Share Plans. For the fiscal year ended May 31, 1999, the Fund's aggregate
expenses paid under the Plans for Class C Shares were $30,320 or 1.00% of the
Class C Shares' average daily net assets. Such expenses were paid to reimburse
the Distributor for the following payments: $4,713 for commissions and
transaction fees paid to financial intermediaries in respect of sales of Class C
Shares of the Fund and $25,607 for fees paid to financial intermediaries for
servicing Class C shareholders and administering the Class C Share Plans.
The Distributor has entered into an agreement with Merrill Lynch
("Merrill") under which shares of the Fund shall be offered pursuant to such
firm's retirement plan alliance program. Trustees and other fiduciaries of
retirement plans seeking to invest in multiple fund families through
broker-dealer retirement plan alliance programs should contact Merrill for
further information concerning such program including, but not limited to,
minimum size and operational requirements.
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<PAGE> 79
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 218256, Kansas City, MO
64121-8256. The transfer agency prices are determined through negotiations with
the Fund's Board of Trustees and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money-market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed bonds on a exchange, which are effected through brokers who charge a
commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities
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<PAGE> 80
transactions and performing functions incidental thereto (such as clearance,
settlement and custody). Research services furnished by firms through which the
Fund effects its securities transactions may be used by the Adviser in servicing
all of its advisory accounts; not all of such services may be used by the
Adviser in connection with the Fund. The Adviser also may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Fund, the Adviser or the Distributor and with brokerage firms
participating in the distribution of the Fund's shares if it reasonably believes
that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considerations on quality of execution and comparable
commission rates, the Adviser may direct an executing broker to pay a portion or
all of any commissions, concessions or discounts to a firm supplying research or
other services or to a firm participating in the distribution of the Fund's
shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions paid to
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.
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The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Affiliated Brokers
-------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Fiscal year ended May 31, 1999........................ $ 0 $ 0 $ 0
Fiscal year ended May 31, 1998........................ $ 0 $ 0 $ 0
Fiscal year ended May 31, 1997........................ $ 0 $ 0 $ N/A
Fiscal year 1999 Percentages:
Commissions with affiliate to total commissions..... 0% 0%
Value of brokerage transactions with affiliate to
total
transactions..................................... 0% 0%
</TABLE>
During the fiscal year ended May 31, 1999, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds (as defined in the Prospectus) will receive statements
quarterly from Investor Services showing any reinvestments of dividends and
capital gain dividends 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
gain dividends and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized dealers or by mailing a check directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen Funds Inc., c/o Investor Services, PO
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<PAGE> 82
Box 218256, Kansas City, MO 64121-8256, requesting an "affidavit of loss" and
obtain a Surety Bond in a form acceptable to Investor Services. On the date the
letter is received, Investor Services will calculate a fee for replacing the
lost certificate equal to no more than 2.00% of the net asset value of the
issued shares, and bill the party to whom the replacement certificate was
mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on a class of shares of the Fund invested into
shares of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
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<PAGE> 83
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
next determined net asset value per share after receipt of instructions may
establish a monthly, quarterly, semi-annual or annual withdrawal plan. Any
investor whose shares in a single account total $5,000 or more at the next
determined net asset value per share after receipt of instructions may establish
a quarterly, semiannual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the capital, if
necessary. Each withdrawal constitutes a redemption of shares on which any
capital gain or loss will be recognized. The planholder may arrange for monthly,
quarterly, semiannual or annual checks in any amount, not less than $25. Such a
systematic withdrawal plan may also be maintained by an investor purchasing
shares for a retirement plan established on a form made available by the Fund.
See "Shareholder Services -- Retirement Plans".
Class B Shareholders and Class C Shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gain dividends
on shares held under the plans are reinvested in additional shares at the next
determined net asset value per share. If periodic withdrawals continuously
exceed reinvested dividends and capital gain dividends, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss realized by the shareholder upon redemption of shares
is a taxable event. The Fund reserves the right to amend or terminate the
systematic withdrawal program upon 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
The following information supplements the section in the Fund's Prospectus
under the same heading. Beginning December 1, 1999, all shareholders will be
limited to eight (8) exchanges per fund during a rolling 365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight (8) exchanges out of that fund are made during a rolling 365-day period.
If exchange privileges are suspended, subsequent exchange requests will not be
processed. Exchange privileges will be restored when the account history shows
fewer than eight (8) exchanges in the rolling 365-day period.
This policy change does not apply to money market funds, systematic
exchange plans, or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A shareholder or Class B shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class C Shares of the Fund
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<PAGE> 84
with credit given for any contingent deferred sales charge paid upon such
redemption. Such reinstatement is made at the net asset value per share (without
sales charge) next determined after the order is received, which must be within
180 days after the date of the redemption. Reinstatement at net asset value per
share is also offered to participants in those eligible retirement plans held or
administered by Van Kampen Trust Company for repayment of principal (and
interest) on their borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a contingent deferred sales
charge ("CDSC -- Class A") may be imposed on certain redemptions made within one
year of purchase. For purposes of the CDSC-Class A, when shares of one fund are
exchanged for shares of another fund, the purchase date for the shares of the
fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC-Class A rather than a front-end load sales charge. In determining whether
a CDSC-Class A is payable, it is assumed that shares held the longest are the
first to be redeemed.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge.
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<PAGE> 85
The CDSC-Class B and C is waived on redemptions of Class B Shares and Class C
Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), the financial hardship of the employee pursuant
to United States Treasury Regulations Section 401(k)-1(d)(2) or from the death
or disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)).
In addition, the charge will be waived on any minimum distribution required to
be distributed in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the plan, a dollar
amount of a
B-54
<PAGE> 86
participating shareholder's investment in the Fund will be redeemed
systematically by the Fund on a periodic basis, and the proceeds mailed to the
shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the plan. The CDSC-Class B and C will be waived on redemptions
made under the plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC-Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the plan and the ability to offer the plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of the Fund may reinvest at
net asset value, with credit for any CDSC-Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his or her purchase to the nearest
full share) in Class C Shares of the Fund, provided that the reinvestment is
effected within 180 days after such redemption and the shareholder has not
previously exercised this reinvestment privilege with respect to Class C Shares
of the Fund. Shares acquired in this manner will be deemed to have the original
cost and purchase date of the redeemed shares for purposes of applying the
CDSC-Class C to subsequent redemptions.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION
The Fund has elected and qualified, and intends to continue to qualify each
year, to be treated as a regulated investment company under Subchapter M of the
Code. To
B-55
<PAGE> 87
qualify as a regulated investment company, the Fund must comply with certain
requirements of the Code relating to, among other things, the source of its
income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its investment company taxable income (including ordinary income
and net short-term capital gain, but not net capital gain, which is the excess
of net long-term capital gain over net short-term capital loss) and meets
certain other requirements, it will not be required to pay federal income taxes
on any income distributed to shareholders. The Fund intends to distribute at
least the minimum amount necessary to satisfy the 90% distribution requirement.
The Fund will not be subject to federal income tax on any net capital gain
distributed to shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to
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<PAGE> 88
securities issued at a discount, the Fund will be required to accrue as income
each year a portion of the discount and to distribute such income each year in
order to maintain its qualification as a regulated investment company and to
avoid income and excise taxes. In order to generate sufficient cash to make
distributions necessary to satisfy the 90% distribution requirement and to avoid
income and excise taxes, the Fund may have to dispose of securities that it
would otherwise have continued to hold.
DISTRIBUTIONS
Distributions of the Fund's investment company taxable income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains regardless of the length of time shares
of the Fund have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates" below. Tax-exempt
shareholders not subject to federal income tax on their income generally will
not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund generally will not be eligible for the dividends received deduction for
corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Investors may be entitled to claim
U.S. foreign tax credits with respect to such taxes, subject to certain
provisions and limitations contained in the Code. If more than 50% in value of
the Fund's total assets at the close of its fiscal year consists of securities
of foreign issuers, the Fund will be eligible to, and may, file elections with
the IRS pursuant to which shareholders of the Fund will be required to (i)
include their respective pro rata
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<PAGE> 89
portions of such taxes in their U.S. income tax returns as gross income, and
(ii) treat such respective pro rata portions as taxes paid by them. Shareholders
will be entitled, subject to certain limitations, to either deduct their
respective pro rata portions of such foreign taxes in computing their taxable
incomes or use them as foreign tax credits against their U.S. federal income
taxes. No deduction for such foreign taxes may be claimed by a shareholder who
does not itemize deductions. Each shareholder will be notified annually whether
the foreign taxes paid by the Fund will "pass through" for that year and, if so,
such notification will designate (i) the shareholder's portion of the foreign
taxes paid to each country and (ii) the portion of dividends that represent
income derived from sources within each country. The amount of foreign taxes for
which a shareholder may claim a credit in any year will be subject to an overall
limitation such that the credit may not exceed the shareholder's U.S. federal
income tax attributable to the shareholder's foreign source taxable income. This
limitation generally applies separately to certain specific categories of
foreign source income including "passive income" which includes, among other
types of income, dividends and interest. The foregoing is only a general
description of the foreign tax credit under current law. Because application of
the rules described above depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gains. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends received with respect to such shares. For purposes of
determining whether shares have been held for six months or less, the holding
period is suspended for any periods during which the shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate
B-58
<PAGE> 90
for capital assets held for one year or less or (ii) 20% for capital assets held
for more than one year. The maximum long-term capital gains rate for
corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Accordingly, investment in the Fund is likely to be appropriate for a Non-U.S.
Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
Final United States Treasury Regulations, effective for payments made after
December 31, 2000, modify the withholding, backup withholding and information
reporting rules including the procedures to be followed by Non-U.S. Shareholders
in establishing foreign status. Prospective investors should consult their tax
advisors concerning the applicability and effect of such Treasury Regulations on
an investment in shares of the Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of the Fund.
B-59
<PAGE> 91
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes a maximum sales charge for Class A Shares); that
all income dividends or capital gain 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.
B-60
<PAGE> 92
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares. Non-standardized
total return calculations do not reflect the imposition of a contingent deferred
sales charge, and if any such contingent deferred sales charge imposed at the
time of redemption were reflected, it would reduce the performance quoted.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement) and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. Total return figures for Class A Shares include the
maximum sales charge; total return figures for Class B Shares and Class C Shares
include any applicable contingent deferred sales charge. Because of the
differences in sales charges and distribution fees, the total returns for each
class of shares will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a
B-61
<PAGE> 93
measure of the income actually earned by the Fund's investments, and from total
return which is a measure of the income actually earned by the Fund's
investments plus the effect of any realized and unrealized appreciation or
depreciation of such investments during a stated period. Distribution rate is,
therefore, not intended to be a complete measure of the Fund's performance.
Distribution rate may sometimes be greater than yield since, for instance, it
may not include the effect of amortization of bond premiums, and may include
non-recurring short-term capital gains and premiums from futures transactions
engaged in by the Fund. Distribution rates will be computed separately for each
class of the Fund's shares.
From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top five sectors, ten largest holdings and other Fund asset
structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes the Fund compares relative to other Van Kampen funds.
Materials may also discuss the Dalbar Financial Services study from 1984 to 1994
which studied investor cash flow into and out of all types of mutual funds. The
ten-year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless if shareholders purchased their fund shares in direct
or sales force distribution channels. The study showed that investors working
with a professional representative have tended over time to earn higher returns
than those who invested directly. The Fund will also be marketed on the
internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds, with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce the
Fund's performance. The Fund will include performance data for each class of
shares of the Fund in any advertisement or information including performance
data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments
B-62
<PAGE> 94
made in a rising market; (3) illustrate allocations among different types of
mutual funds for investors at different stages of their lives; and (4) in
reports or other communications to shareholders or in advertising material,
illustrate the benefits of compounding at various assumed rates of return.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the cover of the Prospectus.
CLASS A SHARES
The Fund's average annual total return assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one-year period ended
May 31, 1999 was -2.17%, (ii) the five-year period ended May 31, 1999 was 3.32%
and (iii) the approximately seven-year, six-month period since November 15,
1991, the commencement of distribution for Class A Shares of the Fund, through
May 31, 1999 was 3.63%.
The Fund's cumulative non-standardized total return, including payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to May 31, 1999 was 30.85%.
The Fund's cumulative non-standardized total return, excluding payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to May 31, 1999 was 37.37%.
CLASS B SHARES
The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class B Shares of the Fund for (i) the one-year
period ended May 31, 1999 was -1.92%, (ii) the five-year period ended May 31,
1999 was 3.28% and (iii) the approximately seven-year, six-month period since
November 15, 1991, the commencement of distribution for Class B Shares of the
Fund, through May 31, 1999 was 3.55%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class B Shares from
its inception to May 31, 1999 was 30.07%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class B Shares from
its inception to May 31, 1999 was 30.07%.
CLASS C SHARES
The Fund's average annual total return, assuming payment of the contingent
deferred sales charge, for Class C Shares of the Fund for (i) the one-year
period ended May 31, 1999 was 1.00%, (ii) the five-year period ended May 31,
1999 was 3.52% and (iii) the approximately six-year, one month period since
April 12, 1993, the commencement of distribution for Class C Shares of the Fund,
through May 31, 1999 was 3.25%.
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The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class C Shares from
its inception to May 31, 1999 was 21.70%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge, with respect to the Class C Shares from
its inception to May 31, 1999 was 21.70%.
These results are based on historical earnings and asset value fluctuations
and are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objective and policies as well as
the risks incurred in the Fund's investment practices.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Global Government Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Government
Securities Fund (the "Fund") at May 31, 1999 and the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
July 6, 1999
F-1
<PAGE> 97
PORTFOLIO OF INVESTMENTS
May 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT & GOVERNMENT AGENCY
OBLIGATIONS 51.7%
$ 375 Government National Mortgage
Association Pools............. 8.000% 11/15/00 to 12/15/25 $ 390,092
2,800 United States Treasury
Bonds (a)..................... 12.000 05/15/05 3,664,052
3,570 United States Treasury
Bonds (a)..................... 8.125 08/15/19 4,387,209
1,200 United States Treasury
Bonds (a)..................... 6.250 08/15/23 1,224,745
9,000 United States Treasury
Notes (a)..................... 7.750 02/15/01 9,338,940
1,000 United States Treasury
Notes......................... 7.250 05/15/04 1,065,160
4,000 United States Treasury
Notes (a)..................... 6.375 03/31/01 4,065,000
3,700 United States Treasury
Notes (a)..................... 6.250 10/31/01 3,761,272
-----------
TOTAL LONG-TERM INVESTMENTS
(Cost $28,018,061)................................................... 27,896,470
-----------
SHORT-TERM INVESTMENTS 50.2%
COMMERCIAL PAPER 28.7%
1,000 Abbey National North America (yielding 4.80%, 07/15/99
maturity) (a)................................................. 993,938
1,800 American Tel & Teleg Co. (yielding 4.79%, 06/01/99
maturity)..................................................... 1,800,000
1,800 Bil North America Inc. (yielding 4.93%, 08/13/99 maturity).... 1,781,907
1,800 BP Capital PLC Years 3&4 (yielding 4.78%, 06/03/99
maturity) (a)................................................. 1,799,522
1,000 Banque Generale Du Luxembourg (yielding 4.81%, 07/09/99
maturity)..................................................... 994,923
900 Coca-Cola Company (yielding 4.95%, 07/19/99 maturity)......... 894,180
1,000 Deutsche Bank Fina (yielding 4.79%, 07/13/99 maturity) (a).... 994,219
1,800 General Electric Capital Corp. (yielding 4.50%, 06/23/99
maturity)..................................................... 1,794,720
1,800 Oesterreichische (yielding 4.80%, 06/16/99 maturity) (a)...... 1,796,461
1,500 Procter & Gamble Company (yielding 4.79%, 06/18/99
maturity)..................................................... 1,496,607
-----------
1,200 Westpac Cap Corp. (yielding 4.80%, 07/13/99 maturity) (a)..... 1,193,048
-----------
TOTAL COMMERCIAL PAPER........................................ 15,539,525
-----------
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 98
PORTFOLIO OF INVESTMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT & GOVERNMENT AGENCY
OBLIGATIONS 17.3%
$2,770 Federal Farm Credit Bank Discount Note (yielding 4.34%,
06/21/99 maturity)............................................ $ 2,762,844
1,800 Federal Home Loan Bank Discount Note (yielding 4.71%, 06/30/99
maturity)..................................................... 1,793,170
1,800 Federal Home Loan Mortgage Discount Note (yielding 4.73%,
06/18/99 maturity) (a)........................................ 1,795,980
3,000 Federal National Mortgage Association Discount Note (yielding
4.72%, 06/15/99 maturity) (a)................................. 2,994,493
-----------
TOTAL UNITED STATES GOVERNMENT & GOVERNMENT AGENCY
OBLIGATIONS................................................... 9,346,487
-----------
REPURCHASE AGREEMENT 4.2%
State Street Bank & Trust Co. (Collateralized by U.S. Treasury
Note, $2,245,000 par, 7.50% coupon, dated 05/31/99, to be sold
on 06/01/99 at $2,258,003).................................... 2,257,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $27,143,889)................................................... 27,143,012
-----------
TOTAL INVESTMENTS 101.9%
(Cost $55,161,950)................................................... 55,039,482
FOREIGN CURRENCY (VARIOUS DENOMINATIONS) 0.2%
(Cost $92,151)....................................................... 92,393
LIABILITIES IN EXCESS OF OTHER ASSETS (2.1%).......................... (1,105,377)
-----------
NET ASSETS 100.0%..................................................... $54,026,498
===========
</TABLE>
(a) Assets segregated as collateral for forward purchase commitments.
See Notes to Financial Statements
F-3
<PAGE> 99
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $55,161,950)........................ $ 55,039,482
Foreign Currency (Cost $92,151)............................. 92,393
Cash........................................................ 155
Receivables:
Interest.................................................. 414,731
Fund Shares Sold.......................................... 8,003
Other....................................................... 28,349
------------
Total Assets.......................................... 55,583,113
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 114,662
Income Distributions...................................... 108,026
Distributor and Affiliates................................ 58,089
Investment Advisory Fee................................... 34,995
Forward Currency Contracts and Forward Commitments.......... 1,089,071
Trustees' Deferred Compensation and Retirement Plans........ 81,827
Accrued Expenses............................................ 69,945
------------
Total Liabilities..................................... 1,556,615
------------
NET ASSETS.................................................. $ 54,026,498
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 93,554,080
Accumulated Undistributed Net Investment Income............. 60,386
Net Unrealized Depreciation................................. (1,190,372)
Accumulated Net Realized Loss............................... (38,397,596)
------------
NET ASSETS.................................................. $ 54,026,498
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $23,885,175 and 3,272,680 shares of
beneficial interest issued and outstanding)........... $ 7.30
Maximum sales charge (4.75%* of offering price)......... .36
------------
Maximum offering price to public........................ $ 7.66
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $27,769,944 and 3,781,212 shares of
beneficial interest issued and outstanding)........... $ 7.34
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $2,371,379 and 325,752 shares of
beneficial interest issued and outstanding)........... $ 7.28
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
F-4
<PAGE> 100
STATEMENT OF OPERATIONS
For the Year Ended May 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $7,884)....... $ 3,781,556
-----------
EXPENSES:
Investment Advisory Fee..................................... 441,468
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $55,675, $335,777 and $30,147,
respectively)............................................. 421,599
Shareholder Services........................................ 92,527
Custody..................................................... 72,517
Trustees' Fees and Related Expenses......................... 22,507
Legal....................................................... 2,573
Other....................................................... 140,711
-----------
Total Expenses.......................................... 1,193,902
-----------
NET INVESTMENT INCOME....................................... $ 2,587,654
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (45,727)
Forward Commitments....................................... 2,054,807
Foreign Currency Transactions............................. (1,371,503)
-----------
Net Realized Gain........................................... 637,577
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 438,434
-----------
End of the Period:
Investments............................................. (122,468)
Forward Currency Contracts and Forward Commitments...... (1,068,146)
Foreign Currency Translation............................ 242
-----------
(1,190,372)
-----------
Net Unrealized Depreciation During the Period............... (1,628,806)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (991,229)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,596,425
===========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 101
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended May 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1999 May 31, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 2,587,654 $ 3,199,850
Net Realized Gain........................................... 637,577 2,027,252
Net Unrealized Depreciation During the Period............... (1,628,806) (1,174,814)
----------- -----------
Change in Net Assets from Operations........................ 1,596,425 4,052,288
----------- -----------
Distributions from Net Investment Income.................... (3,365,273) (3,294,238)
Distributions in Excess of Net Investment Income............ -0- (1,178,795)
----------- -----------
Distributions from and in Excess of Net Investment
Income*................................................... (3,365,273) (4,473,033)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (1,768,848) (420,745)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 25,387,352 14,155,976
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 2,141,165 2,660,059
Cost of Shares Repurchased.................................. (36,621,754) (39,710,065)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (9,093,237) (22,894,030)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (10,862,085) (23,314,775)
NET ASSETS:
Beginning of the Period..................................... 64,888,583 88,203,358
----------- -----------
End of the Period
(Including accumulated undistributed net investment income
of $60,386 and $1,126,836, respectively).................. $54,026,498 $64,888,583
=========== ===========
*DISTRIBUTIONS BY CLASS:
- ----------------------------------------------------------------------------------------
Distributions from and in Excess of Net Investment Income:
Class A Shares............................................ $(1,391,139) $(1,462,620)
Class B Shares............................................ (1,810,060) (2,753,416)
Class C Shares............................................ (164,074) (256,997)
----------- -----------
$(3,365,273) $(4,473,033)
=========== ===========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 102
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------------
Class A Shares 1999(a) 1998(a) 1997(a) 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period... $7.553 $7.604 $ 7.92 $ 8.24 $ 8.26
------ ------ ------- ------ -------
Net Investment Income.................... .369 .352 .526 .56 .60
Net Realized and Unrealized Gain/Loss.... (.144) .088 (.310) (.328) (.016)
------ ------ ------- ------ -------
Total from Investment Operations........... .225 .440 .216 .232 .584
Less Distributions from and in Excess of
Net Investment Income.................... .480 .491 .532 .552 .604
------ ------ ------- ------ -------
Net Asset Value, End of the Period......... $7.298 $7.553 $ 7.604 $ 7.92 $ 8.24
====== ====== ======= ====== =======
Total Return (b)........................... 2.75% 5.98% 2.65% 2.81% 7.52%
Net Assets at End of the Period (In
millions)................................ $ 23.9 $ 21.9 $ 25.7 $ 36.4 $ 47.9
Ratio of Expenses to Average Net Assets
(c)...................................... 1.56% 1.95% 1.57% 1.51% 1.42%
Ratio of Net Investment Income to Average
Net Assets (c)........................... 4.88% 4.69% 6.58% 6.66% 7.18%
Portfolio Turnover......................... 183% 276% 161% 239% 209%
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended through May 31, 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-7
<PAGE> 103
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------------
Class B Shares 1999(a) 1998(a) 1997(a) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $7.596 $7.645 $ 7.96 $ 8.28 $ 8.30
------ ------ ------- ------ -------
Net Investment Income................... .320 .299 .477 .49 .53
Net Realized and Unrealized Gain/Loss... (.152) .083 (.320) (.318) (.006)
------ ------ ------- ------ -------
Total from Investment Operations.......... .168 .382 .157 .172 .524
Less Distributions from and in Excess of
Net Investment Income................... .420 .431 .472 .492 .544
------ ------ ------- ------ -------
Net Asset Value, End of the Period........ $7.344 $7.596 $ 7.645 $ 7.96 $ 8.28
====== ====== ======= ====== =======
Total Return (b).......................... 1.94% 4.98% 2.00% 2.06% 6.69%
Net Assets at End of the Period (In
millions)............................... $ 27.7 $ 39.5 $ 56.9 $ 97.7 $ 123.4
Ratio of Expenses to Average Net Assets
(c)..................................... 2.29% 2.72% 2.33% 2.27% 2.18%
Ratio of Net Investment Income to Average
Net Asset (c)........................... 4.06% 3.91% 5.86% 5.91% 6.41%
Portfolio Turnover........................ 183% 276% 161% 239% 209%
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended through May 31, 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-8
<PAGE> 104
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------------------------------
Class C Shares 1999(a) 1998(a) 1997(a) 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $7.534 $7.585 $ 7.91 $ 8.22 $8.25
------ ------ ------ ------ -----
Net Investment Income...................... .316 .293 .471 .46 .51
Net Realized and Unrealized Gain/Loss...... (.150) .087 (.324) (.278) .004
------ ------ ------ ------ -----
Total from Investment Operations............. .166 .380 .147 .182 .514
Less Distributions from and in Excess of Net
Investment Income.......................... .420 .431 .472 .492 .544
------ ------ ------ ------ -----
Net Asset Value, End of the Period........... $7.280 $7.534 $7.585 $ 7.91 $8.22
====== ====== ====== ====== =====
Total Return (b)............................. 1.96% 5.02% 1.88% 2.20% 6.60%
Net Assets at End of the Period (In
millions).................................. $ 2.4 $ 3.5 $ 5.6 $ 9.5 $18.5
Ratio of Expenses to Average Net Assets
(c)........................................ 2.29% 2.72% 2.33% 2.27% 2.18%
Ratio of Net Investment Income to Average Net
Assets (c)................................. 4.05% 3.90% 5.84% 5.91% 6.42%
Portfolio Turnover........................... 183% 276% 161% 239% 209%
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended through May 31, 1997, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-9
<PAGE> 105
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Global Government Securities Fund (the "Fund") is organized as a
series of Van Kampen World Portfolio Series Trust, a Delaware business trust,
and is registered as a non-diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek total return through a managed balance of foreign and
domestic debt 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 Fund commenced investment
operations on November 15, 1991. The distribution of the Fund's Class C shares
commenced on April 12, 1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at the mean of the quoted bid or
asked prices as obtained from an independent pricing service. If such valuations
are not available, estimates obtained from yield data relating to instruments or
securities with similar characteristics in accordance with procedures
established in good faith by the Board of Trustees. Short-term securities with
remaining maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase
F-10
<PAGE> 106
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
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. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. The
Fund accounts for discounts and premiums on the same basis as is used for
federal income tax reporting. Accordingly, original issue discounts on debt
securities purchased are amortized over the life of the security. Premiums on
debt securities are not amortized. Market discounts are recognized at the time
of sale as realized gains for book purposes and ordinary income for tax
purposes.
Income and expenses of the Fund are allocated on a pro rata basis to each
class of shares, except for distribution and service fees and transfer agency
costs which are unique to each class of shares.
D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars based on quoted exchange rates as of noon Eastern Time. Purchases
and sales of portfolio securities are translated at the rate of exchange
prevailing when such securities were acquired or sold. Income and expenses are
translated at rates prevailing when accrued. 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.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At May 31, 1999, for federal income tax purposes the cost of long- and
short-term investments is $55,175,326, the aggregate gross unrealized
appreciation is $331,411 and the aggregate gross unrealized depreciation is
$467,255, resulting in net unrealized depreciation on long- and short-term
investments of $135,844.
F-11
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At May 31, 1999, the Fund had an accumulated capital loss carryforward
for tax purposes of $37,203,444, which expires between May 31, 2003 and May 31,
2006. Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year,
wash sales, and the mark to market of open forward currency contracts at May 31,
1999.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies. These realized gains and losses are included as net realized gains
or losses for financial reporting purposes. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1999 fiscal year have been identified and appropriately reclassified.
Permanent book and tax basis differences relating to the recognition of net
realized losses on paydowns of mortgage pool obligations totaling $4,778 and net
realized losses on foreign currency transactions of $284,053 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly. Investment advisory fees are calculated monthly, based on the average
daily net assets of the Fund at the annual rate of .75%. The Adviser has entered
into a subadvisory agreement with Morgan Stanley Dean Witter Investment
Management Inc. (the "Subadviser"), who provides advisory services to the Fund
and the Adviser with respect to the Fund's investments. The Adviser pays 50% of
its investment advisory fee to the Subadviser.
For the year ended May 31, 1999, the Fund recognized expenses of
approximately $2,600, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
F-12
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
For the year ended May 31, 1999, the Fund recognized expenses of
approximately $54,800 representing Van Kampen Investments Inc.'s or its
affiliates' (collectively "Van Kampen") cost of providing accounting services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended May 31, 1999,
the Fund recognized expenses of approximately $54,400. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees and are based
on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
F-13
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At May 31, 1999, capital aggregated $35,704,613, $51,872,524 and $5,976,943
for Classes A, B and C, respectively. For the year ended May 31, 1999,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 1,506,855 $ 11,587,495
Class B...................................... 1,726,839 13,643,494
Class C...................................... 20,077 156,363
---------- ------------
Total Sales.................................... 3,253,771 $ 25,387,352
========== ============
Dividend Reinvestment:
Class A...................................... 113,067 $ 869,477
Class B...................................... 153,357 1,186,337
Class C...................................... 11,101 85,351
---------- ------------
Total Dividend Reinvestment.................... 277,525 $ 2,141,165
========== ============
Repurchases:
Class A...................................... (1,246,677) $ (9,616,649)
Class B...................................... (3,295,845) (25,669,869)
Class C...................................... (171,957) (1,335,236)
---------- ------------
Total Repurchases.............................. (4,714,479) $(36,621,754)
========== ============
</TABLE>
F-14
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
At May 31, 1998, capital aggregated $32,864,290, $62,712,562 and $7,070,465
for Classes A, B and C, respectively. For the year ended May 31, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 752,769 $ 5,695,255
Class B...................................... 1,071,748 8,110,111
Class C...................................... 46,375 350,610
---------- ------------
Total Sales.................................... 1,870,892 $ 14,155,976
========== ============
Dividend Reinvestment:
Class A...................................... 122,857 $ 929,454
Class B...................................... 209,735 1,595,886
Class C...................................... 17,848 134,719
---------- ------------
Total Dividend Reinvestment.................... 350,440 $ 2,660,059
========== ============
Repurchases:
Class A...................................... (1,350,521) $(10,227,695)
Class B...................................... (3,525,942) (26,883,122)
Class C...................................... (343,258) (2,599,248)
---------- ------------
Total Repurchases.............................. (5,219,721) $(39,710,065)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B and Class C shares
will automatically convert to Class A shares after the eighth and tenth years,
respectively. The CDSC will be imposed on most redemptions made within five
years of the purchase for Class B and one year of the purchase for Class C as
detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
------------------
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <C>
First................................................. 4.00% 1.00%
Second................................................ 4.00% None
Third................................................. 3.00% None
Fourth................................................ 2.50% None
Fifth................................................. 1.50% None
Sixth and Thereafter.................................. None None
</TABLE>
F-15
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
For the year ended May 31, 1999, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$1,500 and CDSC on the redeemed shares of approximately $47,700. Sales charges
do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and forward commitments, were $58,860,837 and
$64,733,630, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure, or
generate potential gain. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when taking delivery of a
security underlying a forward commitment. In this instance, the recognition of
gain or loss is postponed until the disposal of the security underlying the
forward commitment.
Purchasing securities on a forward commitment involves a risk that the
market value at the time of delivery may be lower than the agreed upon purchase
price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
A. FORWARD PURCHASE COMMITMENTS--The Fund trades certain securities under the
terms of forward purchase commitments, whereby the settlement occurs at a
specific future date. Forward purchase commitments are privately negotiated
transactions between the Fund and dealers. While forward purchase commitments
are outstanding, the Fund maintains sufficient collateral of cash or securities
in a segregated account with its custodian. The forward purchase commitments are
marked to market on a daily basis with changes in value reflected as a component
of unrealized appreciation/depreciation.
F-16
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
The following forward purchase commitments were outstanding at May 31, 1999:
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL UNREALIZED
CURRENCY SETTLEMENT CURRENT APPRECIATION/
(000) DESCRIPTION DATE VALUE DEPRECIATION
- -----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
700-AUD Australia (Commonwealth),
7.500%, 09/15/09
maturity................. 07/22/99 $ 507,022 $ 0
2,000-CA$ Canada (Government of),
5.250%, 09/01/03
maturity................. 08/25/99 1,350,280 (3,737)
1,000-CA$ Canada (Government of),
8.750%, 12/01/05
maturity................. 07/22/99 797,062 (21,635)
9,500-DKK Denmark (Kingdom of),
8.000%, 05/15/03
maturity................. 08/16/99 1,531,863 1,799
2,650-EUR France (Government of),
5.250%, 04/25/08
maturity................. 07/22/99 2,979,276 (40,955)
3,550-EUR France (Government of),
4.500%, 07/12/03
maturity................. 07/09/99 3,863,800 (14,371)
1,200-EUR Germany (Fed Republic),
5.625%, 01/04/28
maturity................. 07/29/99 1,338,437 (55,442)
1,900-EUR Germany (Fed Republic),
5.625%, 01/04/28
maturity................. 07/21/99 2,120,389 (57,870)
4,900-EUR Germany (Fed Unity),
8.500%, 02/20/01
maturity................. 07/21/99 5,551,963 762
2,400-EUR Italy (Republic of),
6.250%, 03/01/02
maturity................. 07/29/99 2,696,666 (7,545)
200,000-JPY Japan, 4.800%, 12/20/02
maturity................. 08/25/99 1,898,323 (4,638)
240,000-JPY Japan, 3.400%, 03/22/04
maturity................. 08/16/99 2,239,112 462
300,000-JPY Japan (Government of),
0.900%, 12/22/08
maturity................. 07/21/99 2,348,142 32,063
1,600-EUR Spain (Kingdom of),
5.150%, 07/30/09
maturity................. 07/21/99 1,759,721 (34,864)
7,000-SEK Sweden (Kingdom of),
6.000%, 02/09/05
maturity................. 08/16/99 886,988 163
2,440-GBP United Kingdom, 7.750%,
09/08/06 maturity........ 07/29/99 4,515,558 (88,156)
----------- ---
$36,384,602 (293,$964)
----------- ---
</TABLE>
B. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transaction at the time the forward commitment is closed. However,
settlement of both the purchase and sale is still scheduled to occur in the
denominated foreign currency at a future date. The net difference in the amount
of foreign currency on the trade is marked
F-17
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
to market daily with any fluctuation included as a component of unrealized
gain/loss on forwards.
The following closed but unsettled forward transaction was outstanding at
May 31, 1999:
<TABLE>
<CAPTION>
UNREALIZED
GAIN/LOSS
ON NET US$ NET
----LOCAL-CURRENCY---- CURRENCY RECEIVABLE
DESCRIPTION/CURRENCY RECEIVABLE PAYABLE DIFFERENCE (PAYABLE)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA (COMMONWEALTH OF) --
DOLLAR
(1,000,000 par, 7.50%, 07/15/05) 1,085,390 1,117,490 $ (32) $(20,957)
====== ========
</TABLE>
C. FORWARD CURRENCY CONTRACTS--A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Upon the settlement of the contract, a realized gain or loss is recognized
and is included as a component of realized gain/loss on forwards. Risks may
arise as a result of the potential inability of the counterparties to meet the
terms of their contracts.
F-18
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
The following forward currency contracts were outstanding as of May 31,
1999:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS
Australian Dollar,
800,000 expiring 07/09/99................ $ 522,341 20,$229
Canadian Dollar,
1,400,000 expiring 06/09/99.............. 950,535 28,087
1,900,000 expiring 07/13/99.............. 1,290,321 23,654
Danish Krone,
10,000,000 expiring 07/12/99............. 1,406,221 (59,195)
British Pound Sterling,
800,000 expiring 06/09/99................ 1,281,716 (3,044)
1,650,000 expiring 07/14/99.............. 2,642,833 (22,742)
Japanese Yen,
700,000,000 expiring 06/14/99............ 5,804,184 (100,996)
30,000,000 expiring 06/14/99............. 248,751 1,654
Swedish Krona,
7,165,000 expiring 07/15/99.............. 835,418 (30,286)
Euro Currency,
500,000 expiring 07/09/99................ 522,708 (19,637)
19,600,000 expiring 07/19/99............. 20,505,503 (629,961)
----------- ---
TOTAL LONG CONTRACTS..................... 36,010,531 (792,237)
----------- ---
SHORT CONTRACTS
Japanese Yen,
60,000,000 expiring 06/14/99............. 497,501 7,932
Euro Currency,
300,000 expiring 07/19/99................ 313,860 10,155
----------- ---
TOTAL SHORT CONTRACTS.................... $ 811,361 18,087
=========== ---
(774,$150)
===
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
F-19
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 1999
- --------------------------------------------------------------------------------
Annual fees under the Plans of up to .25% for Class A and 1.00% each for
Class B and Class C shares are accrued daily. Included in these fees for the
year ended May 31, 1999, are payments retained by Van Kampen of approximately
$260,567.
F-20
<PAGE> 116
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<C> <S>
(a)(1) First Amended and Restated Agreement and Declaration of
Trust(1)
(2) Second Certificate of Amendment(3)
(3) Second Amended and Restated Certificate of Designation(3)
(b) Amended and Restated Bylaws(1)
(c)(1) Specimen Share Class A Shares Certificate(3)
(2) Specimen Share Class B Shares Certificate(3)
(3) Specimen Share Class C Shares Certificate(3)
(d)(1) Investment Advisory Agreement(2)
(2) Investment Sub-Advisory Agreement(2)
(e)(1) Distribution and Service Agreement(2)
(2) Form of Dealer Agreement(1)
(3) Form of Broker Fully Disclosed Clearing Agreement(1)
(4) Form of Bank Fully Disclosed Clearing Agreement(1)
(f)(1) Form of Trustee Deferred Compensation Plan(4)
(2) Form of Trustee Retirement Plan(4)
(g)(1) Custodian Contract(2)
(2) Transfer Agency and Service Agreement(2)
(h)(1) Fund Accounting Agreement(2)
(i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(1)
(j) Consent of PricewaterhouseCoopers LLP+
(k) Not applicable.
(l) Investment Letter+
(m)(1) Plan of Distribution pursuant to Rule 12b-1(2)
(2) Form of Shareholder Assistance Agreement(2)
(3) Form of Administrative Service Agreement(2)
(4) Service Plan(1)
(o) Amended Multiple Class Plan(2)
(p) Power of Attorney+
(z)(1) List of certain investment companies in response to Item
27(a)+
(2) List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)+
</TABLE>
- -------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A, File No. 33-37879, filed
on September 27, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A, File No. 33-37879, filed
on September 26, 1997.
(3) Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A, File No. 33-37879, filed
on September 28, 1998.
(4) Incorporated herein by reference to Post-Effective Amendment No. 81 to Van
Kampen Harbor Fund's Registration Statement on Form N-1A, File Nos. 2-12685
and 811-734, filed on April 29, 1999.
+ Filed herewith.
C-1
<PAGE> 117
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 25. INDEMNIFICATION.
Pursuant to Del. Code Ann. Title 12 Section 3817, a Delaware business trust
may provide in its governing instrument for the indemnification of its officers
and trustees from and against any and all claims and demands whatsoever.
Reference is made to Article 8, Section 8.4 of the Registrant's First
Amended and Restated Agreement and Declaration of Trust. Article 8; Section 8.4
of the First Amended and Restated Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interest of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, or (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
C-2
<PAGE> 118
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds, Inc. (the
"Distributor") and each of its trustees and officers and each person if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damages,
or expense and reasonable counsel fees) arising by reason of any person
acquiring any shares, based upon the ground that the Registration Statement,
prospectus, shareholder reports or other information filed or made public by the
Registrant (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statue or the common law. The Registrant does not agree to indemnify
the Distributor or hold it harmless to the extent that the statement or omission
was made in reliance upon, and in conformity with, information furnished to the
Registrant by or on behalf of the Distributor. In no case in the indemnity of
the Registrant in favor of the Distributor or any person indemnified to be
deemed to protect the Distributor or any person against any liability to the
Fund or its security holders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the agreement.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Investment
Advisory Agreement", "Other Agreements" and "Trustees and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen Asset Management Inc. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of
directors and officers of the Adviser, reference is made to the Adviser's
current Form ADV (File No. 801-1669) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc. (the
"Distributor"), which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc., which is an affiliated person of the Registrant,
is the only principal underwriter for the Registrant. The name, principal
business address and positions and offices with Van Kampen Funds Inc. of each of
the trustees and officers of the Registrant thereof are disclosed in Exhibit
(z)(2). Except as disclosed under the heading, "Trustees and Officers" in Part B
of this Registration Statement, none of such persons has any position or office
with the Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555, Van Kampen Investor Services
C-3
<PAGE> 119
Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts
02171; (ii) by the Adviser, will be maintained at its offices, located at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555; and (iii)
by the Distributor, the principal underwriter, will be maintained at its offices
located at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois
60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-4
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST, certifies that it meets all the
requirements for effectiveness of this Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Oakbrook Terrace and State
of Illinois, on the 28th day of September, 1999.
VAN KAMPEN WORLD PORTFOLIO
SERIES TRUST
By: /s/ A. THOMAS SMITH III
------------------------------------
A. Thomas Smith III, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on September 28, 1999 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* President
- -----------------------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
- -----------------------------------------------------
Jerry D. Choate
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
- -----------------------------------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III September 28, 1999
- -----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>
<PAGE> 121
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 17 TO FORM N-1A
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
(j) Consent of PricewaterhouseCoopers LLP
(1) Investment Letter
(p) Power of Attorney
List of certain investment companies in response to Item
(z)(1) 27(a)
List of officers and directors of Van Kampen Funds Inc. in
(2) response to Item 27(b).
</TABLE>
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated July
6, 1999, relating to the financial statements and financial highlights of Van
Kampen Global Government Securities Fund, a series of Van Kampen World Portfolio
Series Trust, which appears in such Statement of Additional Information, and to
the incorporation by reference of our report into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Prospectus and to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
September 27, 1999
<PAGE> 1
Exhibit (l)
July 19, 1991
American Capital World Portfolio
Series, Inc.
2800 Post Oak Blvd.
Houston, Texas 77056
Re: Investment Letter
Gentlemen:
We are purchasing 100,000 shares of your beneficial interest $0.001 par
value (the "Shares") of American Capital World Portfolio Series, Inc. - American
Capital Global Equity Fund at a price of $9.33 per share upon the terms and
conditions set forth below.
We understand that the Shares have not been registered under any state or
federal securities laws and that the Fund is relying on certain exemptions from
such registration requirements including exemptions dependent upon our intent in
acquiring the Shares. We also understand that any resale of the Shares or any
portion thereof may be subject to restrictions under state and federal
securities laws. Thus we may be required to bear the economic risk of an
investment in the Shares for an indefinite period of time.
We hereby represent and warrant that we are acquiring the Shares solely for
our own account and solely for investment purposes and not with a view to the
resale, redemption or disposition of all or any part thereof and that we have no
present plan or intention to sell, redeem or otherwise dispose of the Shares or
any part thereof. We also represent that the Shares will not be resold except
through redemption or repurchase.
We understand that your organizational expenses will be capitalized and
charged to operations over a period of five years from the date of commencement
of operations. In the event that we redeem any of the Shares within such
five-year amortization period, we understand that the proceeds payable to us
will be reduced by the pro rata share (based upon the proportion of the Shares
redeemed to the total number of the remaining Shares purchased by us) of the
then unamortized deferred organizational expenses as of the date of any such
redemption. We further understand that in the
<PAGE> 2
event you liquidate before the deferred organizational expenses are fully
amortized, then the Shares shall bear their pro rata share (as described above)
of such unamortized deferred organizational expenses.
Very truly yours,
AMERICAN CAPITAL ASSET
MANAGEMENT, INC.
By:/s/ Nori L. Gabert
---------------------------------
Nori L. Gabert
Vice President, Associate
General Counsel and Secretary
<PAGE> 1
EXHIBIT (p)
POWER OF ATTORNEY
The undersigned, being Officers and Trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania trust, and
being Officers and Directors of the Van Kampen Series Fund, Inc. (the
"Corporation"), a Maryland corporation, do hereby, in the capacities shown
below, appoint Richard F. Powers, III, Dennis J. McDonnell and A. Thomas Smith
III, each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with
full power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: June 23, 1999
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD F. POWERS III President
--------------------------
Richard F. Powers III
/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer
-------------------------- and Treasurer
John L. Sullivan
/s/ J. MILES BRANAGAN Trustee/Director
--------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE Trustee/Director
--------------------------
Jerry D. Choate
/s/ RICHARD M. DeMARTINI Trustee/Director
--------------------------
Richard M. DeMartini
/s/ LINDA HUTTON HEAGY Trustee/Director
--------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY Trustee/Director
--------------------------
R. Craig Kennedy
/s/ JACK E. NELSON Trustee/Director
--------------------------
Jack E. Nelson
/s/ DON G. POWELL Trustee/Director
--------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY Trustee/Director
--------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO, SC.D. Trustee/Director
--------------------------
Fernando Sisto, Sc. D.
/s/ WAYNE W. WHALEN Trustee/Director and Chairman
--------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY Trustee/Director
--------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH Trustee/Director
--------------------------
Paul G. Yovovich
</TABLE>
<PAGE> 2
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
<PAGE> 1
EXHIBIT (z)(1)
Item 27(a)
- ----------
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen California Tax Free Income Fund*
Van Kampen Michigan Tax Free Income Fund*
Van Kampen Missouri Tax Free Income Fund*
Van Kampen Ohio Tax Free Income Fund*
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Great American Companies Fund
Van Kampen Growth Fund
Van Kampen Mid Cap Value Fund
Van Kampen Prospector Fund
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 2
Van Kampen Global Managed Assets Fund
Van Kampen Government Securities Fund
Van Kampen Growth and Income Fund
Van Kampen Harbor Fund
Van Kampen High Income Corporate Bond Fund
Van Kampen Life Investment Trust on behalf of its series
Asset Allocation Portfolio
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Limited Maturity Government Fund
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen Aggressive Equity Fund
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Morgan Stanley Government Obligations Money Market Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund*
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund*
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 414
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 182
Florida Insured Municipals Income Trust Series 126
Georgia Insured Municipals Income Trust Series 89
Michigan Insured Municipals Income Trust Series 158
Missouri Insured Municipals Income Trust Series 113
Pennsylvania Insured Municipals Income Trust Series 244
Virginia Investors' Quality Tax-Exempt Trust Series 86
Van Kampen Focus Portfolios Insured Income Trust Series 74
Internet Trust Series 15
Pacific Strategic 10 Trust August 1999 Series
The Dow SM Strategic 10 Trust September 1999 Series
The Dow SM Strategic 10 Trust September 1999
Traditional Series
The Dow SM Strategic 5 Trust September 1999
Series
The Dow SM Strategic 5 Trust September 1999
Traditional Series
EAFE Strategic 20 Trust September 1999 Series
Strategic Picks Opportunity Trust September 1999 Series
Great International Firms Trust Series 9
Brand Name Equity Trust Series 10
Dow 30 Index Trust Series 8
Dow 30 Index and Treasury Trust Series 10
Global Energy Trust Series 10
Financial Institutions Trust Series 1
Edward Jones Select Growth Trust August 1999 Series
Internet Trust Series 16A
Internet Trust Series 16B
Morgan Stanley High-Technology 35 Index Trust Series 8A
Morgan Stanley High-Technology 35 Index Trust Series 8B
Pharmaceutical Trust Series 7A
Pharmaceutical Trust Series 7B
Telecommunications & Bandwidth Trust Series 7A
Telecommunications & Bandwidth Trust Series 7B
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
New Frontier Utility Trust Series 7A
New Frontier Utility Trust Series 7B
Roaring 2000s Trust Series 3
Roaring 2000s Trust Traditional Series 3
Robert Baird - Utility & Communications Trust Series 1
Josepthal - Small Cap Focus Series 1
Morgan Stanley Multinational Index Trust Series 1A
Morgan Stanley Multinational Index Trust Series 1B
Software Trust Series 1A
Software Trust Series 1B
Gruntal - E-Commerce Software Growth Trust Series 1
Wheat First Union - Mid-Cap Banking Opportunity Trust Series 1
</TABLE>
* Funds that have not commenced investment operations.
<PAGE> 1
EXHIBIT (z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of
the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Administrative Officer Oakbrook Terrace, IL
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Sara L. Badler Sr. Vice President; Oakbrook Terrace, IL
Assistant Secretary of the Funds
James J. Boyne Sr. Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Steven T. Johnson Sr. Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Colette M. Saucedo Sr. Vice President Houston, TX
Frederick Shepherd Sr. Vice President Houston, TX
Steven P. Sorenson Sr. Vice President Oakbrook Terrace, IL
Michael L. Stallard Sr. Vice President Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds
Patricia A. Bettlach 1st Vice President Chesterfield, MO
Glenn M. Cackovic 1st Vice President Laguna Niguel, CA
Eric J. Hargens 1st Vice President Orlando, FL
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Carl Mayfield 1st Vice President Lakewood, CO
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
George J. Vogel 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James R. Yount 1st Vice President Mercer Island, WA
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Daniel R. Chambers Vice President Austin, TX
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Christopher J. Egan Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Senior Compliance Director Oakbrook Terrace, IL
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
S. William Lehew III Vice President Charlotte, NC
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
Todd W. Page Vice President Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Fairlawn, OH
Daniel D. Reams Vice President Royal Oak, MI
Michael W. Rohr Vice President Oakbrook Terrace. IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Kimberly M. Spangler Vice President Fairfax, VA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Todd A. Volkman Vice President Austin, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Weston B. Wetherell Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Gregory T. Brunk Asst. Vice President Oakbrook Terrace, IL
Gina Costello Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Thomas J. Sauerborn Asst. Vice President New York, NY
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Theresa M. Renn Officer Oakbrook Terrace, IL
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
Richard F. Powers III Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
</TABLE>
