<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NOS. 33-49358
811-6724
================================================================================
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. 9 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST FOR INCOME
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(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)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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 AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
PART A ------------------
<C> <S> <C>
1. Cover Page......................................... Cover Page
2. Synopsis........................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information.................... Financial Highlights
4. General Description of Registrant.................. The Fund; Investment Objective and Policies;
Investment Practices; Description of
Shares of the Fund
5. Management of the Fund............................. The Fund; Investment Practices; Investment
Advisory Services; Inside Back Cover
6. Capital Stock and Other Securities................. The Fund; Alternative Sales Arrangements;
Shareholder Services; Distribution and
Service Plans; Redemption of Shares;
Distributions from the Fund; Tax Status;
Description of Shares of the Fund; Inside
Back Cover
7. Purchase of Securities Being Offered............... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services; Distribution
and Service Plans
8. Redemption or Repurchase........................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.......................... Inapplicable
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL INFORMATION CAPTION
PART B -------------------------------------------
<C> <S> <C>
10. Cover Page......................................... Cover Page
11. Table of Contents.................................. Table of Contents
12. General Information and History.................... General Information
13. Investment Objectives and Policies................. Investment Objective and Policies;
Investment Restrictions
14. Management of the Fund............................. General Information; Trustees and Officers;
Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities....................................... General Information; Trustees and Officers;
Investment Advisory Agreement
16. Investment Advisory and Other Services............. Investment Advisory Agreement; Distributor;
Distribution and Service Plans; Transfer
Agent; Portfolio Transactions and
Brokerage; Other Information
17. Brokerage Allocation and Other Practices........... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................. Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of Securities
Being Offered.................................... Determination of Net Asset Value; Purchase
and Redemption of Shares; Exchange Privilege
20. Tax Status......................................... Tax Status of the Fund
21. Underwriters....................................... Distributor
22. Calculation of Performance Data.................... Fund Performance
23. Financial Statements............................... Report of Independent Accountants; Financial
Statements; Notes to Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST FOR INCOME
- --------------------------------------------------------------------------------
Van Kampen American Capital U.S. Government Trust for Income (the "Fund") is
a diversified, open-end management investment company, commonly known as a
mutual fund. The Fund's investment objective is to provide investors with a high
level of current income. The Fund seeks to achieve its investment objective by
investing primarily in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including mortgage-related
securities issued by instrumentalities of the U.S. Government. In order to hedge
against changes in interest rates, the Fund may also purchase or sell options
and engage in transactions involving futures contracts and options on such
contracts. The Fund does not engage in an option writing program for the purpose
of enhancing or supporting its monthly distribution. See "Investment Practices"
for more information. There is no assurance that the Fund will achieve its
investment objective.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. (the "Adviser"). This Prospectus sets forth certain information
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE COMMISSION OR ANY STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated January 28, 1998, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Statement of Additional Information
may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED JANUARY 28, 1998.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 11
Investment Objective and Policies........................... 11
Investment Practices........................................ 18
Investment Advisory Services................................ 24
Alternative Sales Arrangements.............................. 25
Purchase of Shares.......................................... 28
Shareholder Services........................................ 38
Redemption of Shares........................................ 43
Distribution and Service Plans.............................. 46
Distributions from the Fund................................. 48
Tax Status.................................................. 49
Fund Performance............................................ 53
Description of Shares of the Fund........................... 55
Additional Information...................................... 56
</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 ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital U.S. Government Trust for Income (the
"Fund") is a diversified, open-end management investment company organized as a
Delaware business trust.
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of current income. There is no assurance that the Fund will achieve its
investment objective. See "Investment Objective and Policies."
INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing primarily in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including mortgage-related
securities issued by instrumentalities of the U.S. Government. Under normal
circumstances, at least 65% of the total assets of the Fund are invested in such
securities and in repurchase agreements fully collateralized by U.S. Government
securities. The Fund may invest up to 35% of its total assets in high quality
debt securities issued by foreign governments and their political subdivisions,
agencies and instrumentalities and certain debt securities which are not U.S.
Government securities. The Fund may lend portfolio securities. The Fund may sell
(write) and purchase call and put options, and may purchase and sell interest
rate futures contracts and options on such contracts so long as such
transactions are entered into for bona fide hedging purposes. The Fund may
purchase or sell debt securities on a forward commitment basis and enter into
interest rate swaps and may purchase or sell interest rate caps, floors and
collars.
INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
public, each with its own sales charge structure: Class A shares, Class B shares
and Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. Each class of shares represents an
interest in the same portfolio of investments of the Fund. See "Alternative
Sales Arrangements." For information on redeeming shares see "Redemption of
Shares."
Class A Shares. Class A shares are offered at net asset value per share plus
a maximum initial sales charge of 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a
3
<PAGE> 6
contingent deferred sales charge ("CDSC") of 1.00% may be imposed on
redemptions made within one year of the purchase. Class A shares are subject to
an annual service fee of up to 0.25% of its average daily net assets
attributable to such class of shares. See "Purchase of Shares -- Class A Shares"
and "Distribution and Service Plans."
Class B Shares. Class B shares are offered at net asset value per share and
are subject to a maximum CDSC of 4.00% on redemptions made within the first or
second year after purchase and declining thereafter to 0.00% after the fifth
year. See "Redemption of Shares." Class B shares are subject to a combined
annual distribution fee and service fee of up to 1.00% of the Fund's average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution and Service Plans." Class B shares
convert automatically to Class A shares eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted. See
"Alternative Sales Arrangements -- Conversion Feature."
Class C Shares. Class C shares are offered at net asset value per share and
are subject to a CDSC of 1.00% on redemptions made within one year of purchase.
See "Redemption of Shares." Class C shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution and Service Plans."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the Fund's investment adviser.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.
RISK FACTORS. The market prices of debt securities, including U.S. Government
securities, generally fluctuate with changes in interest rates so that the
Fund's net asset value can be expected to decrease as interest rates rise. As
interest rates fall, increases in the Fund's net asset value may be limited by
investments in mortgage related securities and by the sale of options. No
assurance can be given as to the actual maturity of a mortgage-related security
because the mortgage loans underlying the security may be prepaid by the
obligor. Depending on market conditions, the Fund may be able to reinvest
pre-payments passed through to it only at a lower yielding investment rate.
Varying economic and market conditions may affect the value of, and yields on,
debt securities owned by the Fund. The Fund may also purchase or sell debt
securities on a forward commitment basis, purchase or sell options and engage in
transactions involving interest rate futures contracts and options on such
contracts, and may lend its portfolio securities. The Fund may enter into
interest rate swaps and may purchase or sell interest rate caps, floors and
collars. Each of such activities may subject the Fund to additional risks.
Shares of
4
<PAGE> 7
the Fund are not insured or guaranteed by the U.S. Government, its agencies or
instrumentalities or by any other person or entity. See "Investment Objective
and Policies" and "Investment Practices".
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are declared
daily and distributed monthly. Any short-term or long-term capital gains are
distributed at least annually. The Fund does not engage in an option writing
program for the purpose of enhancing or supporting its monthly distribution. All
dividends and distributions are automatically reinvested in shares of the Fund
at net asset value per share (without sales charge) unless payment in cash is
requested. A portion of the dividends and distributions paid may constitute a
return of capital for federal income tax purposes. See "Distributions from the
Fund."
The foregoing is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Prospectus.
5
<PAGE> 8
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)................ 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)......................... None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or Year Year
redemption proceeds)........... None(2) 1--4.00% 1--1.00%
Year
2--4.00% After--None
Year
3--3.00%
Year
4--2.50%
Year
5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)............ None None None
Exchange fee..................... None None None
</TABLE>
- ------------------------------------------------------------------------------
(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 CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Class A Shares."
6
<PAGE> 9
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)........................ 0.60% 0.60% 0.60%
12b-1 Fees (as a percentage of average
daily net assets)(1)..................... 0.25% 1.00%(2) 1.00%(2)
Other Expenses (as a percentage of average
daily net assets)........................ 0.33% 0.34% 0.34%
Total Expenses (as a percentage of average
daily net assets)........................ 1.18% 1.94% 1.94%
</TABLE>
- ------------------------------------------------------------------------------
(1) Class A shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
shares and Class C shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Distribution and Service Plans."
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a Fund-level expense by NASD
Rules.
7
<PAGE> 10
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.18% for
Class A shares, 1.94% for Class B shares
and 1.94% for Class C shares, (ii) a
5.00% annual return and (iii) redemption
at the end of each time period:
Class A shares........................ $59 $83 $109 $184
Class B shares........................ $60 $91 $120 $207*
Class C shares........................ $30 $61 $105 $226
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of
each time period:
Class A shares........................ $59 $83 $109 $184
Class B shares........................ $20 $61 $105 $207*
Class C shares........................ $20 $61 $105 $226
</TABLE>
- ------------------------------------------------------------------------------
* Based on conversion to Class A shares after eight years.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. The ten year amount with respect to Class B shares of the
Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A shares. Class B shares acquired through the
exchange privilege are subject to the CDSC schedule relating to the Class B
shares of the fund from which the purchase of Class B shares was originally
made. Accordingly, future expenses as projected could be higher than those
determined in the above table if the investor's Class B shares were exchanged
from a fund with a higher CDSC. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "Redemption of Shares" and "Distribution and Service Plans."
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest
outstanding throughout each of the periods indicated)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. The most recent
annual report (which contains the financial highlights for the last five fiscal
periods) is included in the Statement of Additional Information and may be
obtained by shareholders without charge by calling the telephone number on the
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
------------------------------------------------------------
OCTOBER 6, 1992
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED SEPTEMBER 30 OPERATIONS) TO
----------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993(A)
------- ------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $8.108 $8.38 $8.17 $9.26 $9.43
------- ------- ------- -------- --------
Net Investment Income...................................... .567 .565 .63 .67 .81
Net Realized and Unrealized Gain/Loss...................... .073 (.274) .23 (1.0085) (.1795)
------- ------- ------- -------- --------
Total from Investment Operations............................ .640 .291 .86 (.3385) .6305
------- ------- ------- -------- --------
Less Distributions from:
Net Investment Income...................................... (.555) (.563) (.645) (.674) (.8005)
Net Realized Gain.......................................... -- -- (.005) (.0775) --
------- ------- ------- -------- --------
Total Distributions......................................... (.555) (.563) (.65) (.7515) (.8005)
------- ------- ------- -------- --------
Net Asset Value, End of the Period.......................... $8.193 $8.108 $8.38 $8.17 $9.26
======= ======= ======= ======== ========
Total Return(b)............................................. 8.09% 3.57% 10.97% (3.82%) 8.07%(c)
Net Assets at End of the Period (In millions)............... $38.3 $45.2 $70.2 $75.3 $92.4
Ratio of Expenses to Average Net Assets(d).................. 1.18% 1.13% 1.09% 1.07% 1.07%
Ratio of Net Investment Income to Average Net Assets(d)..... 6.95% 6.83% 7.67% 7.89% 8.71%
Portfolio Turnover Rate..................................... 82% 282% 262% 122% 281%*
</TABLE>
(Table and footnotes continued on following page)
9
<PAGE> 12
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
------------------------------------------------------ -----------------------------------
OCTOBER 6, 1992
COMMENCEMENT OF
INVESTMENT
YEAR ENDED SEPTEMBER 30 OPERATIONS) TO YEAR ENDED SEPTEMBER 30
----------------------------------- SEPTEMBER 30, -----------------------------------
1997 1996 1995 1994 1993(A) 1997 1996 1995 1994
------ ------ ------- ------- ---------------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $8.104 $8.38 $8.17 $9.26 $9.43 $8.104 $8.38 $8.17 $9.25
------ ------ ------- ------- ------ ------ ------ ------- -------
Net Investment Income............. .505 .504 .57 .61 .70 .503 .502 .57 .63
Net Realized and Unrealized
Gain/Loss....................... .073 (.277) .228 (1.0205) (.1475) .074 (.275) .228 (1.0305)
------ ------ ------- ------- ------ ------ ------ ------- -------
Total from Investment Operations... .578 .277 .798 (.4105) .5525 .577 .227 .798 (.4005)
------ ------ ------- ------- ------ ------ ------ ------- -------
Less Distributions from:
Net Investment Income............. (.495) (.503) (.583) (.602) (.7225) (.495) (.503) (.583) (.602)
Net Realized Gain................. -- -- (.005) (.0775) -- -- -- (.005) (.0775)
------ ------ ------- ------- ------ ------ ------ ------- -------
Total Distributions................ (.495) (.503) (.588) (.6795) (.7225) (.495) (.503) (.588) (.6795)
------ ------ ------- ------- ------ ------ ------ ------- -------
Net Asset Value, End of the
Period............................ $8.187 $8.104 $8.38 $8.17 $9.26 $8.186 $8.104 $8.38 $8.17
====== ====== ======= ======= ====== ====== ====== ======= =======
Total Return(b).................... 7.43% 2.70% 10.14% (4.61%) 7.24%(c) 7.43% 2.70% 10.14% (4.51%)
Net Assets at End of the Period (In
millions)......................... 121.7% $150.8 $200.2 $226.7 $242.8 $13.7 $18.6 $28.1 $37.5
Ratio of Expenses to Average Net
Assets(d)......................... 1.94% 1.89% 1.85% 1.82% 1.81% 1.94% 1.89% 1.85% 1.82%
Ratio of Net Investment Income to
Average Net Assets(d)............. 6.20% 6.08% 6.92% 7.11% 7.70% 6.20% 6.08% 6.94% 7.08%
Portfolio Turnover Rate............ 82% 282% 262% 122% 281%* 82% 282% 262% 122%
<CAPTION>
CLASS C SHARES
----------------
APRIL 12, 1993
(COMMENCEMENT OF
DISTRIBUTION) TO
SEPTEMBER 30,
1993(A)
----------------
<S> <C>
Net Asset Value, Beginning of the
Period............................ $9.41
------
Net Investment Income............. .33
Net Realized and Unrealized
Gain/Loss....................... (.1561)
------
Total from Investment Operations... .1739
------
Less Distributions from:
Net Investment Income............. (.3339)
Net Realized Gain................. --
------
Total Distributions................ (.3339)
------
Net Asset Value, End of the
Period............................ $9.25
======
Total Return(b).................... 2.10%*
Net Assets at End of the Period (In
millions)......................... $37.8
Ratio of Expenses to Average Net
Assets(d)......................... 1.76%
Ratio of Net Investment Income to
Average Net Assets(d)............. 7.26%
Portfolio Turnover Rate............ 281%*
</TABLE>
- ------------
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Total return from November 2, 1992 (date the Fund's investment strategy was
implemented) through September 30, 1993 without annualization.
(d) For the year ended September 30, 1997, the impact of expenses reimbursed by
the Adviser was less than 0.01% of average net assets. For the period ended
September 30, 1993, the ratios of expenses and net investment income to
average net assets for Class A shares would have been 1.15% and 8.64%,
respectively, had the Adviser not reimbursed certain expenses of the Fund.
For the period ended September 30, 1993, the ratios of expenses and net
investment income to average net assets for Class B shares would have been
1.89% and 7.62%, respectively, had the Adviser not reimbursed certain
expenses of the Fund. For the period ended September 30, 1993, the ratios of
expenses and net investment income to average net assets for Class C shares
would have been 1.83% and 7.18%, respectively, had the Adviser not
reimbursed certain expenses of the Fund.
10
<PAGE> 13
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way to invest in a diversified
portfolio of securities by combining their resources in an effort to achieve
such goals.
Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
GENERAL. The investment objective of the Fund is to seek to provide investors
with a high level of current income. The Fund seeks to achieve its objective by
investing primarily in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including mortgage-related
securities issued or guaranteed by instrumentalities of the U.S. Government.
Under normal circumstances, at least 65% of the total assets of the Fund are
invested in such securities and in repurchase agreements fully collateralized by
U.S. Government securities. The Fund may invest up to 35% of its total assets in
high quality debt securities issued by foreign governments and their political
subdivisions, agencies and instrumentalities, certain debt securities which are
not U.S. Government securities but which are rated at the time of purchase
within the two highest grades assigned by Moody's Investors Service, Inc. or
Standard and Poor's Ratings Group or in any non-rated debt security considered
by the Adviser to be of comparable quality, and supranational issues. The Fund
may lend portfolio securities on a fully collateralized basis. See "Investment
Practices -- Lending of Securities" herein. In order to hedge against changes in
interest rates, the Fund may purchase or sell options and engage in transactions
involving futures contracts and options on such contracts and Eurodollar
instruments. See "Investment Practices -- Using Options, Futures Contracts and
Related Options and Eurodollar Instruments" herein, and the Statement of
Additional Information for discussion of options, futures contracts and related
options. The Fund may also purchase or sell debt securities on a forward
commitment basis and enter into interest rate swaps and may purchase or sell
interest rate caps, floors and collars. See "Investment Practices -- Forward
Commitments and Interest Rate Transactions" herein. Shares of the Fund are not
insured or guaranteed by the U.S. Government, its agencies or instrumentalities
or by any other
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person or entity. There is no assurance that the Fund will achieve its
investment objective.
The prices of debt securities generally vary inversely with interest rates. If
interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. Debt securities with longer
maturities generally offer higher yields than debt securities with shorter
maturities assuming all other factors, including credit quality, being equal.
For a given change in interest rates, the market price of longer-maturity debt
securities generally fluctuate more than the market price of shorter-maturity
debt securities. This potential for a decline in prices of debt securities due
to rising interest rates is referred to herein as "market risk."
While the Fund has no policy limiting the maturities of the debt securities in
which it may invest, the Adviser seeks to moderate market risk by generally
maintaining a portfolio duration within a range of two to six years. Duration is
a measure of the expected life of a debt security that was developed as an
alternative to the concept of "term to maturity." Duration incorporates a debt
security's yield, coupon interest payments, final maturity and call features
into one measure. Traditionally a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "price volatility" of the
security). However, "term to maturity" measures only the time until a debt
security provides its final payment taking no account of the pattern of the
security's payments of interest or principal prior to maturity. Duration is a
measure of the expected life of a debt security on a present value basis
expressed in years. It measures the length of the time interval between the
present and the time when the interest and principal payments are scheduled (or
in the case of a callable bond, expected to be received), weighing them by the
present value of the cash to be received at each future point in time. For any
debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity, and for zero coupon issues,
duration and term to maturity are equal. In general, the lower the coupon rate
of interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other
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similar situations, the Adviser will use more sophisticated analytical
techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
The Fund may purchase debt securities at a premium over the principal or face
value in order to obtain higher current income. The amount of any premium
declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Fund's net asset value. Any such decline is realized for accounting purposes as
a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.
The Fund may purchase or sell options and engage in transactions involving
interest rate futures contracts and options on such contracts but only for bona
fide hedging purposes. By using such securities, the Fund seeks to limit its
exposure to adverse interest rate changes, but the Fund also reduces its
potential for capital appreciation if interest rates decline. The purchase and
sale of such securities may result in a higher portfolio turnover rate than if
the Fund had not purchased or sold such securities. See "Investment
Practices -- Using Options, Futures Contracts and Related Options" and the
Statement of Additional Information for discussion of options, futures contracts
and related options.
The investment objective of the Fund cannot be changed without shareholder
approval; however, the investment policies set forth in this section of the
Prospectus may be changed by the Trustees of the Fund without shareholder
approval.
An investment in the Fund may not be appropriate for all investors. The Fund
is not intended to be a complete investment program, and investors should
consider their long-term investment goals and financial needs when making an
investment decision with respect to the Fund. An investment in the Fund is
intended to be a long-term investment, and should not be used as a trading
vehicle.
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 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
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from the U.S. Government and some of which are backed only by the credit of the
issuer itself (as described below).
U.S. Government securities 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").
GNMA is a wholly-owned corporate instrumentality of the United States whose
securities and guarantees are backed by the full faith and credit of the United
States. FNMA, a federally chartered and privately-owned corporation, and FHLMC,
a federal corporation, are instrumentalities of the United States. The
securities and guarantees of FNMA and FHLMC are not backed, directly or
indirectly, by the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend amounts to FNMA up to certain specified limits, neither the United States
nor any agency thereof is obligated to finance FNMA's or FHLMC's operations or
to assist FNMA or FHLMC in any other manner. Securities of GNMA, FNMA and FHLMC
may include, but are not limited to, collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") which are
described below under "Mortgage-Related Securities."
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools. Interests in
such pools may then be issued by private entities or also may be issued or
guaranteed by an agency or instrumentality of the U.S. Government. Interests in
such pools are what this Prospectus calls "Mortgage-Related Securities."
Mortgage-Related Securities are characterized by monthly payments to the
holder, reflecting the underlying monthly payments made by the borrowers who
received the mortgage loans less fees paid to the guarantor and the servicer of
such mortgage loans. The payments to the holders of Mortgage-Related Securities
(such as the Fund), like the payments on the underlying mortgage loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can,
and typically do, pay them off sooner. Thus, the holders of Mortgage-Related
Securities frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payment. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that in times of declining interest rates, some of the Fund's higher
yielding securities might be converted to cash, and the Fund will be forced to
accept lower interest rates when that cash is used to purchase additional
securities. The increased likelihood of prepayment when interest rates decline
also limits market price appreciation of mortgage-related securities. If the
Fund buys mortgage-related securities at a premium, mortgage foreclosures or
mortgage prepayments may result in a loss to the Fund of up to the
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<PAGE> 17
amount of the premium paid since only timely payment of principal and interest
is guaranteed.
The Fund may invest in private Mortgage-Related Securities ("Private Pass-
Throughs") as opposed to Mortgage-Related Securities issued or guaranteed by
GNMA, FNMA, and FHLMC only if such Private Pass-Throughs are rated at the time
of purchase in the two highest grades by a nationally-recognized rating agency
or in any non-rated debt security considered by the Adviser to be of comparable
quality.
CMOs are debt obligations collateralized by mortgage loans or Mortgage-Related
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 bankers, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. An issuer of
CMOs may elect to be treated, for federal income tax purposes, as a REMIC. An
issuer of CMOs issued after 1991 must elect to be treated as a REMIC or it will
be taxable as a corporation under rules regarding taxable mortgage pools. CMOs
are issued in a number of classes or series with different maturities. The
classes or series are retired in sequence as the underlying mortgages are
repaid. Prepayment may shorten the stated maturity of the obligation and can
result in a loss of premium, if any has been paid. Certain of these securities
may have variable or floating interest rates and others may be stripped
(securities which provide only the principal or interest feature of the
underlying security).
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Fund will treat such privately
issued securities as U.S. Government securities only if they are 100%
collateralized at the time of issuance by securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. The Fund intends to invest
in privately issued CMOs and REMICs only if they are rated at the time of
purchase in the two highest grades by a nationally-recognized rating agency.
Additional information regarding Mortgage-Related Securities, CMOs and REMICs
is contained in the Fund's Statement of Additional Information.
ZERO COUPON AND OTHER STRIPPED SECURITIES. The Fund may also invest in the
interest only or principal only components of debt securities described above.
This includes "zero coupon" Treasury securities and stripped securities.
The Fund may invest in "zero coupon" Treasury securities which are U.S.
Treasury bills, notes and bonds which have been stripped of their unmatured
interest coupons and receipts or certificates representing interest on such
stripped debt obligations and coupons. A "zero coupon" security pays no interest
in cash to its holder during its life although interest is accrued during that
period. Its value to
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<PAGE> 18
an investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
Currently the principal U.S. Treasury security issued without coupons is the
Treasury bill. The Treasury also has wire transferable "zero coupon" Treasury
securities available. In the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). Such custodial receipts or certificates are not considered by
the Fund to be U.S. Government securities.
"Zero coupon" Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, "zero coupon" securities eliminate the
reinvestment risk and lock in a rate of return to maturity. Current federal tax
law requires that a holder (such as the Fund) of a "zero coupon" security accrue
a portion of the discount at which the security was purchased as income each
year even though the Fund received no interest payment in cash on the security
during the year. In order to generate sufficient cash to make distributions of
such income, the Fund may have to dispose of securities that it would otherwise
continue to hold, which, in some cases may be disadvantageous to the Fund. For
additional discussion of the tax treatment of "zero coupon" Treasury securities,
see "Distributions from the Fund" and "Tax Status."
Stripped mortgage-related securities (hereinafter referred to as "Stripped
Mortgage Securities") are derivative multiclass mortgage securities. Stripped
Mortgage Securities are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. Stripped Mortgage 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. A common type of Stripped Mortgage Securities will have one class
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder 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 yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including
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prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa.
Holders of PO securities are not entitled to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and are subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Current federal tax law
requires that a holder (such as the Fund) of such securities accrue a portion of
the discount at which the security was purchased as income each year even though
the holder receives no interest payment in cash on the certificate during the
year. Such securities may involve greater risk than securities issued directly
by the U.S. Government, its agencies or instrumentalities.
Although the market for government-issued IO and PO securities backed by
fixed-rate mortgages is increasingly liquid, certain of such securities may not
be readily marketable and will be considered illiquid for purposes of the Fund's
limitation on investments in illiquid securities. The Trustees of the Fund will
establish guidelines and standards for determining whether a particular
government-issued IO or PO backed by fixed-rate mortgages is liquid. Generally,
such a security may be deemed liquid if it can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of the net asset value per share. Stripped Mortgage Securities,
other than government-issued IO and PO securities backed by fixed-rate
mortgages, are presently considered by the staff of the SEC to be illiquid
securities and thus subject to the Fund's limitation on investment in illiquid
securities.
OTHER SECURITIES. The Fund may invest in high quality debt obligations of
supranational lending entities organized or supported by several national
governments. Such supranational entities in which the Fund may invest include
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 certain
European countries created to establish a common market for coal and steel and
to further the economic development of its member countries; European Investment
Bank, established to finance investment projects that contribute to the balanced
development of the European Economic 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
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<PAGE> 20
progress of its African member countries; Asian Development Bank, established to
promote economic growth and cooperation in Asia and the Far East.
The Fund may also invest in U.S. dollar denominated debt issues of foreign
governments, their agencies and instrumentalities, and other foreign issuers.
The Adviser believes that in many instances such foreign debt securities may
provide higher yields than securities of domestic issuers which have similar
maturities. Such securities may be subject to foreign government taxes which
would reduce the effective yield. Such securities may be less liquid than the
securities of U.S. corporations, and are certainly less liquid than securities
issued by the U.S. Government or its agencies.
The above-described foreign investments involve certain risks, which should be
considered carefully by an investor in the Fund. These risks include political
or economic instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of U.S. corporations or of the U.S. Government. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, 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. Finally, in the
event of a default on any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities. Such investments will be made only when the Adviser believes
that higher yields justify the attendant risks.
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INVESTMENT PRACTICES
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REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks or broker-dealers in order to earn a return on temporarily available cash.
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of a default by the other party. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid securities held by the Fund, exceeds 15% of the
value of its net assets. In the event of the bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities, and the Fund
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<PAGE> 21
could incur losses including: (a) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible lack of access to income on the underlying security during
this period; and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair administration of the joint account
and to protect the amounts in that account.
FORWARD COMMITMENTS. The Fund may purchase or sell debt securities on a
"when-issued" or "delayed delivery" basis ("Forward Commitments"). These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, frequently a month or more
after such transaction. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the Forward
Commitment until delivery and payment take place. At the time of settlement, the
market value of the securities may be more or less than the purchase or sale
price. The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment. When engaging in Forward Commitments, the Fund relies on the
other party to complete the transaction, should the other party fail to do so,
the Fund might lose a purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time of the failure. The Fund
maintains a segregated account (which is marked to market daily) of cash or
liquid portfolio securities with the Fund's custodian in an aggregate amount
equal to the amount of its commitment as long as the obligation to purchase or
sell continues.
LENDING OF SECURITIES. In order to generate additional income, the Fund may
lend its portfolio securities in an amount up to 33 1/3% of total assets to
broker-dealers, major banks or other recognized domestic institutional borrowers
of securities not affiliated with the Adviser. The borrower at all times during
the loan must maintain cash, cash equivalent or high-grade liquid debt
securities as collateral or provide to the Fund an irrevocable letter of credit
equal in value to at least 100% of the value of the securities loaned. During
the time portfolio securities
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<PAGE> 22
are on loan, the Fund receives any dividends or interest paid on such securities
and may invest the collateral itself or receive an agreed-upon amount of
interest income from the borrower who has delivered the collateral or a letter
of credit. There are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars. The Fund expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may also enter into
these transactions to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund does not intend to use
these transactions as speculative investments and will not enter into interest
rate swaps or sell interest rate caps or floors where it does not own or have
the right to acquire the underlying securities or other instruments providing
the income stream the Fund may be obligated to pay. Interest rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed-rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor. An interest rate collar combines the elements of purchasing a cap and
selling a floor. The collar protects against an interest rate rise above the
maximum amount but foregoes the benefit of an interest rate decline below the
minimum amount. Interest rate swaps, caps, floors and collars will be treated as
illiquid securities and will, therefore, be subject to the Fund's investment
restriction limiting investment in illiquid securities. See the Statement of
Additional Information for further discussion on such interest rate
transactions.
The net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a daily
basis and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Fund's custodian. If the Fund enters into an interest rate swap
on other than a net basis, the Fund would maintain a segregated account in the
full amount accrued on a daily basis of the Fund's obligations with respect to
the swap.
PORTFOLIO TURNOVER. The Fund may experience a high rate of portfolio turnover,
which may vary from year to year. The rate of portfolio turnover is not a
limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, futures contracts and
related options. A 100%
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turnover rate would occur, for example, if all the securities held by the Fund
were replaced in a period of one year. Higher portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
are borne directly by the Fund, and may result in realization of short-term
capital gains if securities are held for one year or less which may be subject
to applicable income taxes. See "Distributions from the Fund." Although no
assurance can be given with respect to future portfolio turnover rates, it is
anticipated that the Fund's rate of portfolio turnover will not generally exceed
300%.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies
of the Fund permit the Fund to engage in options, futures contracts and related
options.
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial institutions of other parties ("Counterparties") through direct
bilateral agreement with the Counterparty. The Fund will sell only OTC Options
(other than OTC currency options) that are subject to a buy-back provision
permitting the Fund to require to the Counterparty to sell the option back to
the Fund at a formula price within seven days. The staff of the SEC currently
takes the position that, in general, OTC Options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities covering
OTC Options sold by the Fund, are illiquid securities subject to the Fund's
limitation on illiquid securities.
The Fund presently expects to utilize options, futures contracts and options
thereon in several different ways, depending upon the status of a Fund's
portfolio and the Adviser's expectations concerning the securities markets. See
the Statement of Additional Information for discussion of options, futures
contracts and related options.
Potential Risks of Options, Futures Contracts and Related Options. 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. However, the purchase and sale of options, futures
contracts and related options involve risks different from those involved with
direct investments in underlying securities. While utilization of options,
futures contracts and related options may be advantageous to the Fund, if the
Adviser is not successful in employing such instruments in managing the Fund's
investments, the Fund's performance will be worse than if the Fund did not make
such investments. In addition, the Fund would pay commissions and other costs in
connection with such investments, which may increase the Fund's expenses and
reduce its return.
In order to prevent leverage in connection with the purchase of futures
contracts or call options thereon by the Fund, an amount of cash or liquid
securities equal to
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<PAGE> 24
the market value of the obligation under the futures contracts or options (less
any related margin deposits) will be maintained in a segregated account with the
Custodian. The Fund may not invest more than 15% of its net assets in illiquid
securities, including certain OTC Options deemed illiquid and repurchase
agreements which have a maturity of longer than seven days. A more complete
discussion of the potential risks involved in transactions in options, futures
contracts and related options, is contained in the Statement of Additional
Information.
EURODOLLAR INSTRUMENTS. The Fund may invest in Eurodollar instruments for
hedging purposes. Eurodollar instruments are essentially U.S. dollar-denominated
futures contracts or options thereon that are linked to the London Interbank
Offered Rate ("LIBOR"). Eurodollar futures contracts enable purchasers to obtain
a fixed-rate for the lending of funds and sellers to obtain a fixed-rate for
borrowings. The Fund intends to use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR to which many short-term borrowings
and floating rate securities are linked. Eurodollar instruments are subject to
the same limitations and risks as other futures contracts and options thereon as
described above and in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund. The debt securities in which the Fund invests are generally traded in
the over-the-counter market. Such securities are generally traded on a net basis
with dealers acting as principal for their own accounts without a stated
commission, although the prices of the securities usually include a profit to
the dealers. It is the policy of the Fund to seek to obtain the best net results
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities, the firm's risk in positioning the
securities involved, and the provision of supplemental investment research by
the firm. While the Fund seeks reasonably competitive dealer spreads, the Fund
will not necessarily be paying the lowest spread available. Brokerage
commissions are paid on transactions in listed options, futures contracts and
options thereon. The Adviser is authorized to place portfolio transactions with
broker-dealers participating in the distribution of shares of the Fund and other
funds distributed by the Distributor if it reasonably believes that the quality
of the execution and any commissions are comparable to that available from other
qualified firms. 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 service if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. The
information received may be used by the Adviser in managing the assets of other
advisory accounts as well as in the management of the assets of the Fund.
22
<PAGE> 25
INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental investment
restrictions which, like the investment objective, may not be changed without
approval by a vote of a majority of the outstanding voting shares of the Fund
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act")).
These restrictions provide, among other things, that the Fund may not:
1. Invest more than 5% of its assets in the securities of any one issuer
(except the U.S. Government, its agencies and instrumentalities) or
purchase more than 10% of the outstanding voting securities of any one
issuer, 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.
2. Purchase or sell commodities or commodity contracts except that the Fund
may enter into transactions in options, futures contracts or related
options including forward commitments.
3. 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
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."
4. Borrow in excess of 5% of the market or other fair value of its total
assets; or pledge its assets to an extent greater than 5% of the market or
other fair value of its total assets. Any such borrowings shall be from
banks and shall be undertaken only as a temporary measure for extraordinary
or emergency purposes. Margin deposits or payments in connection with the
writing of options, or in connection with the purchase or sale of futures
contracts and related options, are not deemed to be a pledge or other
encumbrance.
5. Make any investment which would cause more than 25% of the market or other
fair value of its total assets to be invested in the securities of issuers,
all of which conduct their principal business activities in the same
industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
6. Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (i) write covered or fully collateralized call options, write
secured put options, and enter into closing or offsetting purchase
transactions with respect to such options, (ii) purchase and sell options
to the extent that the
23
<PAGE> 26
premiums paid for all such options owned at any time do not exceed 10% of its
total assets and (iii) 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 Commodity Futures Trading Commission ("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 purchase futures
contracts or related options if more than 30% of the Fund's total assets
would be so invested.
Additional investment restrictions are set forth in the Statement of
Additional Information.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $52 billion under management or supervision. Van Kampen American Capital's
more than 60 open-end and 37 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen American Capital Distributors, Inc., the Distributor of
the Fund and the sponsor of the funds mentioned above, is also a wholly-owned
subsidiary of Van Kampen American Capital. Van Kampen American Capital is an
indirect wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
The Adviser's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley Asset 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 global custody, securities clearance services and
securities lending.
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.
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<PAGE> 27
Under an investment advisory agreement between the Adviser and the Fund (the
"Advisory Agreement"), the Fund pays the Adviser a monthly fee computed on
average daily net assets of the Fund at the annual rate of 0.60% of the Fund's
average daily net assets.
Under the Advisory Agreement, the Fund also reimburses the Adviser for the
costs of the Fund's accounting services, which include maintaining its financial
books and records and calculating its daily net asset value. Operating expenses
paid by the Fund include service fees, distribution fees, custodian fees, legal
and accounting fees, the costs of reports and proxies to shareholders, trustees'
fees (other than those who are affiliated persons as defined in the 1940 Act of
the Adviser, Distributor or Van Kampen American Capital), and all other business
expenses not specifically assumed by the Adviser. Advisory (management) fee and
total operating expense ratios are shown under the caption "Annual Fund
Operating Expenses and Example" herein.
From time to time the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them to the extent
of, or bearing expenses in excess of, such limitations as they may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes 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. Ted Mundy has been primarily responsible for the day-
to-day management of the Fund's investment portfolio since June 30, 1994. Mr.
Mundy is Vice President of the Adviser. Since June 1995, Mr. Mundy has been a
Vice President of Advisory Corp. From September 1990 to June 1994, Mr. Mundy was
a portfolio manager with AMR Investment Services, Inc.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% at the time of purchase (4.99% of the net
25
<PAGE> 28
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a CDSC of 1.00% may be imposed on certain redemptions made within one year of
the purchase. Class A shares are subject to an ongoing service fee at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares. Certain purchases of Class A shares qualify
for reduced initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Purchase of
Shares -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares."
CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon, 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 shares received thereon, 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 shares received thereon, 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 acquired through the
exchange privilege is determined by
26
<PAGE> 29
reference to the Participating 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 Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) the conversion of shares does not constitute a taxable
event under federal income tax law. The conversion 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.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher aggregate fees and CDSC on Class B shares and Class C shares would be
less than the initial sales charge on Class A shares purchased at the same time,
and to what extent such differential would be offset by the higher dividends per
share on Class A shares. To assist investors in making this determination, the
table under the caption "Annual Fund Operating Expenses and Example" sets forth
examples of the charges applicable to each class of shares. In this regard,
Class A shares may be more beneficial to the investor who qualifies for reduced
initial sales charges or purchases at net asset value. It is presently the
policy of the Distributor not to accept any order of $500,000 or more for Class
B shares or any order of $1 million or more for Class C shares as it ordinarily
would be more beneficial for such investor to purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A shares or Class B
shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on
27
<PAGE> 30
larger investments, wish to maximize their current income from the start, prefer
not to pay redemption charges or have a longer-term investment horizon. In
addition, the check writing privilege is only available for Class A shares (see
"Shareholder Services -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately or have a longer-term investment
horizon. Class C shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon or desire a short CDSC
schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Sales personnel of broker-dealers distributing the Fund's shares and
other persons entitled to receive compensation for selling such shares may
receive differing compensation for selling such shares. INVESTORS SHOULD
UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE CDSC AND ONGOING DISTRIBUTION
FEE WITH RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE
OF THE INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution
and Service Plans."
GENERAL. Dividends paid by the Fund with respect to Class A shares, Class B
shares and Class C shares will be calculated in the same manner at the same time
on the same day except that the higher distribution fees and transfer agency
costs relating to Class B shares or Class C shares will be borne by the
respective class. See "Distributions from the Fund." Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class of
certain other mutual funds advised by the Adviser and its affiliates and
distributed by the Distributor. See "Shareholders Services -- Exchange
Privilege."
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers three classes of shares to the public on a continuous basis
through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares also are offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be
28
<PAGE> 31
waived by the Distributor for plans involving periodic investments. Shares of
the Fund may be sold in foreign countries where permissible. The Fund and the
Distributor reserve the right to refuse any order for the purchase of shares.
The Fund also reserves the right to suspend the sale of the Fund's shares in
response to conditions in the securities markets or for other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares also may be purchased by completing the application accompanying
this Prospectus and forwarding the application, through the authorized dealer,
to the shareholder service agent, ACCESS Investor Services, Inc. ("ACCESS"), a
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or deferred sales charge depending on the class of shares chosen by
the investor, as shown in the tables herein. Net asset value per share for each
class 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. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class, by the total number of shares of
the class outstanding.
U.S. Government securities and agency obligations are valued at the last
reported bid price. Listed options are valued at the last reported sale price on
the exchange on which such option is traded, or, if no sales are reported, at
the mean between the last reported bid and asked prices. Options for which
market quotations are not readily available are valued at a fair value under a
method approved by the Trustees.
Short-term investments with a maturity of 60 days or less when purchased are
valued at cost plus interest earned (amortized cost), which approximates market
value. Short-term investments with a maturity of more than 60 days when
purchased are valued based on market quotations until the remaining days to
maturity becomes less than 61 days. From such time, until maturity, the
investments are valued at amortized cost using the value of the investment on
the 61st day. See the notes to financial statements in the Statement of
Additional Information.
Generally, the net asset values per share of the Class A shares, Class B
shares, and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fee and
transfer agency costs applicable
29
<PAGE> 32
with respect to the Class B shares and Class C shares and the differential in
the dividends paid on the classes of shares. The price paid for shares purchased
is based on the next calculation of net asset value (plus sales charges, where
applicable) after an order 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. Orders received by authorized dealers after the close of
the Exchange are priced based on the next close provided they are received by
the Distributor prior to the Distributor's close of business on such day. It is
the responsibility of authorized dealers to transmit orders received by them to
the Distributor so they will be received prior to such time. Orders of less than
$500 are mailed by the authorized dealer and processed at the offering price
next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights except that (i) Class B shares
and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher distribution fee and transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class has exclusive
voting rights with respect to approvals of the Rule 12b-1 distribution plan
pursuant to which its distribution fee or service fee is paid, (iii) each class
of shares has different exchange privileges, (iv) certain classes of shares are
subject to a conversion feature and (v) certain classes of shares have different
shareholder service options available. The net income attributable to Class B
shares and Class C shares and the dividends payable on Class B shares and Class
C shares will be reduced by the amount of the distribution fee and other
expenses associated with such shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
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. Fees may include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a
30
<PAGE> 33
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 is sponsoring a sales incentive program for A.G. Edwards &
Sons, Inc. ("A.G. Edwards"). The Distributor will reallow its portion of the
Fund's sales concession to A.G. Edwards on sales of Class A shares of the Fund
relating to the "rollover" of any savings into an Individual Retirement Account
("IRA"), the transfer of assets into an IRA and contributions to an IRA,
commencing on January 1, 1998 and terminating on April 15, 1998. 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.
CLASS A SHARES
The public offering price of Class A shares is the net asset value plus a
sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
AS % OF TO DEALERS
SIZE OF AS % OF NET AMOUNT (AS A % OF
INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000................ 4.75% 4.99% 4.25%
$100,000 but less than $250,000... 3.75% 3.90% 3.25%
$250,000 but less than $500,000... 2.75% 2.83% 2.25%
$500,000 but less than
$1,000,000...................... 2.00% 2.04% 1.75%
$1,000,000 or more*............... * * *
- ------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
CDSC of 1.00% on redemptions made within one year of the purchase. A
commission will be paid to authorized dealers who initiate and are
responsible for purchases of $1 million or more 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.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are
31
<PAGE> 34
reallowed all or substantially all of the sales commissions may be deemed to be
underwriters for purposes of the Securities Act of 1933, as amended.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited under the Glass-Steagall Act from providing certain underwriting or
distribution services. If banking firms were prohibited from acting in any
capacity or providing any of the described services, the Distributor would
consider what action, if any, would be appropriate. The Distributor does not
believe that termination of a relationship with a bank would result in any
material adverse consequences to the Fund. State securities laws regarding
registration of banks and other financial institutions may differ from the
interpretations of federal law expressed herein, and banks and other financial
institutions may be required to register as dealers pursuant to certain state
laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their 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 the Adviser or Van Kampen American Capital Investment
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 preceding 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.
32
<PAGE> 35
Cumulative Purchase Discount. The size of investment shown in the preceding
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 preceding sales charge
table. The size of investment shown in the preceding sales charge table also
includes purchases of shares of the Participating Funds over a 13-month period
based on the total amount of intended purchases plus the value of all shares of
the Participating Funds previously purchased and still owned. An investor may
elect to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charge applicable to the purchases made and the
sales charges previously paid. The initial purchase must be for an amount equal
to at least 5% of the minimum total purchased amount of the level selected. If
trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.
Unit Investment Trust Reinvestment Programs. 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 with no minimum initial or subsequent
investment requirement, if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information
33
<PAGE> 36
with respect to this program, including the applicable terms and conditions
thereof, 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 ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired trustees or directors of funds advised by the Adviser
or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. 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 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 twelve-month period.
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<PAGE> 37
(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 detail with respect to such
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 Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have
received proposals from the Distributor prior to February 1, 1997 based on
net asset value purchase privileges previously in effect will be qualified
to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen American Capital 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.
35
<PAGE> 38
(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 CDSC 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 ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer 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 herein under "Distribution and Service Plans"
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.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a CDSC at the rates set
forth in the following table charged as a percentage of the dollar amount
subject thereto. The charge is assessed on an amount equal to the lesser of the
then current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions. It is presently the
policy of the Distributor not to accept any order for
36
<PAGE> 39
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 CDSC, if any, varies depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First.............................................. 4.00%
Second............................................. 4.00%
Third.............................................. 3.00%
Fourth............................................. 2.50%
Fifth.............................................. 1.50%
Sixth and After.................................... None
</TABLE>
- ------------------------------------------------------------------------------
In determining whether a CDSC 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 CDSC, second of shares held for over five years and
third of shares held longest during the five-year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives, in the form of
cash or other compensation, to authorized dealers that sell Class B shares of
the Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
charge is
37
<PAGE> 40
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions. It is presently the policy of the Distributor not
to accept any order in an amount of $1 million or more for Class C shares
because it ordinarily will be more advantageous for an investor making such an
investment to purchase Class A shares.
In determining whether a CDSC 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 CDSC and second of shares held for more than one year.
A commission or transaction fee of up to 1.00% of the purchase amount will
generally be paid to authorized dealers at the time of purchase. Authorized
dealers also will be paid ongoing commissions and transaction fees of up to
0.75% of the average daily net assets of the Fund's Class C shares generally
annually commencing in the second year after purchase. Additionally, the
Distributor may, from time to time, pay additional promotional incentives, in
the form of cash or other compensation, to authorized dealers that sell Class C
shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemptions of Class B shares and Class C shares (i)
following the death or disability (as defined in the Code) of a shareholder;
(ii) in connection with required minimum distributions from an IRA or other
retirement plan; (iii) pursuant to the Fund's systematic withdrawal plan but
limited to 12% annually of the initial value of the account; (iv) in
circumstances under which no commission or transaction fee is paid to authorized
dealers at the time of purchase of such shares; and (v) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The CDSC is also waived on redemptions of Class C shares
as it relates to the reinvestment of redemption proceeds in shares of the same
class of the Fund within 180 days after redemption. See the Statement of
Additional Information for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of such services.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which the
investor's shares of the Fund are held by ACCESS, the Fund's transfer agent.
38
<PAGE> 41
ACCESS performs bookkeeping, data processing and administrative services related
to the maintenance of shareholder accounts. Except as described in this
Prospectus, after each share transaction in an account, the shareholder receives
a statement showing the activity in the account. Each shareholder who has an
account in any of the Participating Funds will receive statements quarterly from
ACCESS showing any reinvestments of dividends and capital gains distributions
and any other activity in the account since the preceding statement. Such
shareholders also will receive separate confirmations for each purchase or sale
transaction other than reinvestment of dividends and capital gains distributions
and systematic purchases or redemptions. Additions to an investment account may
be made at any time by purchasing shares through authorized dealers or by
mailing a check directly to ACCESS.
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received,
ACCESS will calculate 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.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. Unless the shareholder instructs otherwise, the reinvestment
plan is automatic. This instruction may be made by telephone by calling (800)
421-5666 ((800) 421-2833 for the hearing impaired) or in writing to ACCESS. The
investor may, on the initial application or prior to any declaration, instruct
that dividends be paid in cash and capital gains distributions be reinvested at
net asset value, or that both dividends and capital gains distributions be paid
in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized investment dealers.
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
39
<PAGE> 42
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of 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 ACCESS has received the
application and the voided check or deposit slip, such shareholder's designated
bank account, following any redemption, will be credited with the proceeds of
such redemption. Once enrolled in the ACH plan, a shareholder may terminate
participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus, or by calling (800) 421-5666 ((800) 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 shareholder 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 as of the payable date of the
distribution.
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 values 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 at least 30 days prior to an exchange. Shares of the Fund
40
<PAGE> 43
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser 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 CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund (the
"original fund"). Upon redemption from the Participating Funds' complex of
funds, Class B shares and Class C share are subject to the CDSC schedule imposed
by the original fund.
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 ACCESS 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 this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. 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 file a specific
written request. The Fund reserves the right to reject any order to acquire its
shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
41
<PAGE> 44
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which any capital gain or loss will be recognized. The planholder may arrange
for monthly, quarterly, semi-annual, or annual checks in any amount not less
than $25. Such a systematic withdrawal plan may also be maintained by an
investor purchasing shares for a retirement plan established on a form made
available by the Fund. See "Shareholder Services -- Retirement Plans."
Class B 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 CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss realized by the shareholder upon redemption of shares
is a taxable event.
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 ACCESS 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 ACCESS. 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 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 account by ACCESS at the next determined net asset value.
Check writing redemptions represent the sale of Class A shares. Any gain or loss
realized on the sale of shares is a taxable event. See "Redemption of Shares."
42
<PAGE> 45
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 Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or the
Bank. Retirement plans and accounts that are subject to backup withholding are
not eligible for the privilege. A "stop payment" system is not available on
these checks. See the Statement of Additional Information for further
information regarding the establishment of the privilege.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from authorized dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by 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.
As described herein under "Purchase of Shares," redemptions of Class B shares
and Class C shares are subject to a CDSC. In addition, a CDSC of 1.00% may be
imposed on certain redemptions of Class A shares made within one year of
purchase for investments of $1 million or more. The CDSC incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
expenses. A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
43
<PAGE> 46
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from and be forwarded to Van Kampen American Capital Trust
Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for
information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received. Payment for shares redeemed will be made by check mailed within seven
days after acceptance by ACCESS of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, ACCESS may delay mailing a redemption check
until it confirms that 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.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record for the account or to
the bank account of record as described below. To establish such privilege, a
shareholder must complete the appropriate section of the application
accompanying this Prospectus or call the Fund at (800) 421-5666 to request that
a copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares contact the telephone transaction line at (800)
421-5684. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, neither VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable
44
<PAGE> 47
procedures are not followed. Telephone redemptions may not be available if the
shareholder cannot reach ACCESS by telephone, whether because all telephone
lines are busy or for any other reason; in such case, a shareholder would have
to use the Fund's regular redemption procedure previously described. Requests
received by ACCESS prior to 4:00 p.m., New York time, on a regular business day
will be processed at the net asset value per share determined that day. These
privileges are available for all accounts other than retirement accounts. The
telephone redemption privilege is not available for shares represented by
certificates. If an account has multiple owners, ACCESS may rely on the
instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. The Fund reserves the right at any time to
terminate, limit or otherwise modify this redemption privilege.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset 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 is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
involuntary redemption may only occur if the shareholder account is less than
the minimum initial investment due to shareholder redemptions.
REDEMPTION UPON DISABILITY. The Fund will waive the CDSC on redemptions
following the disability of a Class B shareholder or Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
CDSC on Class B shares and Class C shares.
45
<PAGE> 48
In cases of disability, the CDSC on Class B shares and Class C shares will be
waived where the disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the initial determination of disability. This waiver of the CDSC on
Class B shares and Class C shares applies to a total or partial redemption, but
only to redemptions of shares held at the time of the initial determination of
disability.
REINSTATEMENT PRIVILEGE. A Class A shareholder or Class B shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A shares of the Fund. A Class C shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of the Fund with credit given for any CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen American Capital Trust Company for
repayment of principal (and interest) on their borrowings on such plans.
- ------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
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 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 each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers or financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year of
the average daily net assets attributable to the Class A shares of the Fund
pursuant to the Distribution Plan and Service Plan. From such amount, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of
46
<PAGE> 49
the 0.25% not paid to such brokers, dealers or financial intermediaries or the
amount of the Distributor's actual distribution-related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C shares up to 0.75% of the Fund's average daily
net assets attributable to Class C shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of shares, any unreimbursed expenses will be carried forward and paid
by the Fund (up to the amount of the actual expenses incurred) in future years
so long as such Distribution Plan is 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 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
47
<PAGE> 50
(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 September 30, 1997,
there were $16,123,143 and $1,679,724 of unreimbursed distribution-related
expenses with respect to Class B shares and Class C shares, respectively,
representing 13.24% and 12.25% of the Fund's net assets attributable to Class B
shares and Class C shares, respectively. If the Distribution Plan was 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 CDSCs.
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of shares. Various federal and state laws prohibit national
banks and some state-chartered commercial banks from underwriting or dealing in
the Fund's shares. In addition, state securities laws on this issue may differ
from the interpretations of federal law, and banks and financial institutions
may be required to register as dealers pursuant to state law. In the unlikely
event that a court were to find that these laws prevent such banks from
providing such services described above, the Fund would seek alternate providers
and expects that shareholders would not experience any disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. Income dividends are declared each business day,
and distributed monthly. The daily dividend is a fixed amount determined for
each class at least monthly. Shares (other than shares acquired through an
exchange) become entitled to dividends on the day ACCESS receives payment for
the shares. With respect to shares acquired through an exchange, such shares
become entitled to dividends on the day after ACCESS receives payment for the
shares. If a dealer delays forwarding to ACCESS payment for shares which an
investor has made to the dealer, this will in effect cost the investor money
because it will delay the date upon which such investor becomes entitled to
dividends. Shares (other than shares sold through an exchange) remain entitled
to dividends through the day before such shares are priced for redemption
purposes, which occurs when a valid redemption request with respect to such
shares is received by ACCESS. With respect to shares sold through an exchange,
such shares remain entitled to dividends through and including the day such
shares are priced for redemption.
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.
Any net realized short-term or long-term capital gains will be distributed to
shareholders at least annually.
48
<PAGE> 51
Unless the shareholder instructs otherwise, dividends and capital gains
distributions are automatically applied to purchase additional shares of the
Fund at the next determined net asset value. See "Shareholder
Services -- Reinvestment Plan."
Dividends and distributions paid by the Fund have the effect of reducing the
net asset value per share on the record date by the amount of the dividend or
distribution. Therefore, a dividend or distribution paid shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed below.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
FEDERAL INCOME TAXATION. The Fund has qualified and intends to continue to
qualify each year to be treated as a regulated investment company under
Subchapter M of the Code. To qualify as a regulated investment company, the Fund
must comply with certain requirements of the Code relating to, among other
things, the source of its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including tax-exempt interest, taxable
income and net short-term capital gain, but not net capital gains, which are the
excess of net long-term capital gains over net short-term capital losses), it
will not be required to pay federal income taxes on any income distributed to
shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 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 31 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
49
<PAGE> 52
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 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 net investment income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to shareholders as long-term capital gains regardless of the length of time
shares of the Fund have been held by such shareholders. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates Under the 1997 Tax
Act" below. Tax-exempt shareholders not subject to
50
<PAGE> 53
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. Fund distributions
will not qualify 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 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Under Code Section 988, foreign currency gains or losses from certain forward
contracts not traded in the interbank market as well as certain other gains or
losses attributable to currency exchange rate fluctuations are typically treated
as ordinary income or loss. Such income or loss may increase or decrease (or
possibly eliminate) the Fund's income available for distribution. If, under the
rules governing the tax treatment of foreign currency gains and losses, the
Fund's income available for distribution is decreased or eliminated, all or a
portion of the dividends declared by the Fund may be treated for federal income
tax purposes as a return of capital or, in some circumstances, as capital gain.
Generally, a shareholder's tax basis in Fund shares will be reduced to the
extent that an amount distributed to such shareholder is treated as a return of
capital.
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
51
<PAGE> 54
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss. For a summary of the tax rates
applicable to capital gains, see "Capital Gains Rates Under the 1997 Tax Act"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains dividends received with respect to such shares. For purposes of
determining whether shares have been held for six months or less, the holding
period is suspended for any periods during which the shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. The 1997 Tax Act did not
affect the maximum long-term capital gains rate for corporations which remains
at 35%. The new tax rates for capital gains under the 1997 Tax Act described
above apply to distributions of capital gains dividends by regulated investment
companies such as the Fund as well as to sales and exchanges of shares in
regulated investment companies such as the Fund. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gains
dividends received on such shares (see "Sale of Shares" above), it is unclear
how such capital losses offset the capital gains referred to above. Shareholders
should consult their own tax advisors as to the application of the new capital
gains rates to their particular circumstances.
GENERAL. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their own tax advisor
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.
52
<PAGE> 55
- ------------------------------------------------------------------------------
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 of 4.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable CDSC has been paid.
The Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
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.
53
<PAGE> 56
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.
To increase the Fund's yield the Adviser may, from time to time, absorb a
certain amount of the future ordinary business expenses. The Adviser may stop
absorbing these expenses at any time without prior notice.
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 of 4.75%; total return figures for Class B shares and Class
C shares include any applicable CDSC. Because of the differences in sales
charges and distribution fees, the total returns for each of the classes will
differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
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, 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
54
<PAGE> 57
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. For these purposes, the performance of the
Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce Fund'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 provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.
The Fund's Annual Report and Semi-Annual Report contain additional performance
information. A copy of the Annual Report or Semi-Annual Report may be obtained
without charge by calling or writing the Fund at the telephone number and
address printed on the cover of this Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally organized on June 24, 1992, under the laws of the
Commonwealth of Massachusetts as a business entity commonly known as a
"Massachusetts business trust". The Fund was reorganized as a Delaware business
trust as of August 5, 1995 and adopted its current name at that time.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
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 the provisions of the Fund's Declaration of Trust.
Each class of shares represents an interest in the same assets of the Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee. Except as described herein, there are no conversion,
preemptive or other subscription rights. In the event of liquidation, each of
the shares of the Fund is entitled to its portion of all of the Fund's net
assets after all debt and expenses of the Fund have been paid. Since Class B
shares and Class C shares pay higher distribution fees and transfer agency
costs, the liquidation proceeds to Class B shareholders and Class C shareholders
are likely to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at
55
<PAGE> 58
such meeting. The Fund will assist such holders in communicating with other
shareholders of the Fund to the extent required by the 1940 Act. More detailed
information concerning the Fund is set forth in the Statement of Additional
Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The fiscal year end of the Fund is September 30. The Fund sends to its
shareholders at least semi-annually reports showing the Fund's portfolio and
other information. An Annual Report, containing financial statements audited by
the Fund's independent accountants, is sent to shareholders each year. After the
end of each year, shareholders will receive federal tax information regarding
dividends and capital gains distribution.
56
<PAGE> 59
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
FOR AUTOMATED TELEPHONE
SERVICES DIAL (800) 847-2424
VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST
FOR INCOME
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
U.S. Government Trust for Income
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
U.S. Government Trust for Income
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (Illinois)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 60
------------------------------------------------------------------------------
U.S. GOVERNMENT TRUST FOR INCOME
------------------------------------------------------------------------------
P R O S P E C T U S
JANUARY 28, 1998
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST FOR INCOME
Van Kampen American Capital U.S. Government Trust for Income (the "Fund")
is a diversified, open-end management investment company. 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 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 American Capital Distributors, Inc. at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-2
Investment Restrictions..................................... B-11
Trustees and Officers....................................... B-14
Legal Counsel............................................... B-23
Investment Advisory Agreement............................... B-23
Distributor................................................. B-24
Distribution and Service Plans.............................. B-25
Transfer Agent.............................................. B-26
Portfolio Turnover.......................................... B-26
Portfolio Transactions and Brokerage........................ B-26
Determination of Net Asset Value............................ B-28
Purchase and Redemption of Shares........................... B-28
Exchange Privilege.......................................... B-30
Check Writing Privilege..................................... B-31
Tax Status of the Fund...................................... B-31
Fund Performance............................................ B-31
Other Information........................................... B-32
Report of Independent Accountants........................... B-33
Financial Statements........................................ B-34
Notes to Financial Statements............................... B-41
</TABLE>
This Statement of Additional Information is dated January 28, 1998.
B-1
<PAGE> 62
GENERAL INFORMATION
Van Kampen American Capital U.S. Government Trust for Income, formerly
known as American Capital U.S. Government Trust for Income (the "Fund"), was
originally organized as a business trust under the laws of Massachusetts on June
24, 1992. The Fund was reorganized as a series of Van Kampen American Capital
U.S. Government Trust for Income (the "Trust") under the laws of the State of
Delaware as a business trust and adopted its present name as of August 5, 1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is an indirect wholly-owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. The principal office of the Fund,
the Adviser, the Distributor and VKAC is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley Asset 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 global custody, securities clearance services and
securities lending.
As of January 21, 1998, 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 AND NATURE CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER OF OWNERSHIP SHARES OWNERSHIP
-------------------------- ----------------- -------- ----------
<S> <C> <C> <C>
Van Kampen American Capital 722,177 shares A 15.72%
Trust Company owned of record
2800 Post Oak Blvd. 1,169,014 shares B 8.25%
Houston, TX 77056 owned of record
Merrill Lynch Pierce Fenner & Smith 505,968 shares A 11.01%
4800 Deer Lake Drive East, owned of record
3rd Floor 1,494,205 shares B 10.54%
Jacksonville, FL 32246-6484 owned of record
296,328 shares C 19.31%
owned of record
</TABLE>
- ---------------
Van Kampen American Capital Trust Company acts as custodian for certain employee
benefit plans and independent retirement accounts.
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete 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.
One type of mortgage-related security in which the Fund invests is that
which is issued or guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. One such type
of mortgage-related security is a Government National Mortgage Association
("GNMA") Certificate. GNMA Certificates are backed as to principal and interest
by the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments of FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Fund may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is backed
by FHMLC as to payment of principal and interest but, like a FNMA security, it
is not backed by the full faith and credit of the U.S. Government.
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GNMA Certificates
Government National Mortgage Association. The Government National Mortgage
Association is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.
Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Fund purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owned on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.
GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Fund will be
reinvested in additional GNMA Certificates or in other permissible investments.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers
Home Administration or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the United States. GNMA
is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities (the type of mortgages backing the vast majority of GNMA
Certificates) is approximately twelve years. For this reason, it is customary
for pricing purposes to consider GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06 of 1% of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an annual servicing fee of
0.44 of 1% for assembling the mortgage pool and for passing through monthly
payments of interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than at
par.
2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.
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In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1% more than
high grade corporate bonds and 1/2 of 1% more than U.S. Government and U.S.
Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a twelve-year life.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FNMA SECURITIES
The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all principal and interest payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the United States.
FHLMC SECURITIES
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970 to
promote development of a nationwide secondary market in conventional residential
mortgages. The FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. The FHMLC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal. GMCs also
represent a pro rata interest in a pool of mortgages. However, these instruments
pay interest semi-annually and return principal once a year in guaranteed
minimum payments. The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith and credit of the
United States.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations are debt obligations issued generally
by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgages which are secured by mortgage-related
securities, including GNMA Certificates, FHLMC Certificates and FNMA
Certificates, together with certain funds and other collateral. Scheduled
distributions on the mortgage-related securities pledged to secure the
collateralized mortgage obligations, together with certain funds and other
collateral and reinvestment income thereon at an assumed reinvestment rate, will
be sufficient to make timely payments of interest on the obligations and to
retire the obligations not later than their stated maturity. Since the rate of
payment of principal of any collateralized mortgage obligation will depend on
the rate of payment (including prepayments) of the principal of the mortgage
loans underlying the mortgage-related securities; the actual maturity of the
obligation could occur significantly earlier than its stated maturity.
Collateralized mortgage obligations may be subject to redemption under certain
circumstances. The rate of interest borne by collateralized mortgage obligations
may be either fixed or floating. In addition, certain collateralized mortgage
obligations do not bear interest and are sold at a substantial discount (i.e., a
price less than the principal amount). Purchases of collateralized mortgage
obligations at a substantial discount involves a risk that the anticipated yield
on the purchase may not be realized if the underlying mortgage loans prepay at a
slower than anticipated rate, since the yield depends significantly on the rate
of prepayment of the underlying mortgages. Conversely, purchases of
collateralized mortgage obligations at a premium involve additional risk of loss
of principal in the event of unanticipated prepayments of the mortgage loans
underlying the mortgage-related
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<PAGE> 65
securities since the premium may not have been fully amortized at the time the
obligation is repaid. The market value of collateralized mortgage obligations
purchased at a substantial premium of discount is extremely volatile and the
effects of prepayments on the underlying mortgage loans may increase such
volatility.
Although payment of the principal and interest on the mortgage-backed
certificates pledged to secure collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of their issuers and are not insured or guaranteed
by GNMA, FHLMC, FNMA or any other governmental agency or instrumentality, or by
any other person or entity. The issuers of collateralized mortgage obligations
typically have no significant assets other than those pledged as collateral for
the obligations.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to broker-dealers and other financial institutions provided
that such loans are callable at any time by the Fund, and are at all times
secured by collateral that is at least equal to the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to receive the interest on the loaned securities, while at the same
time earning interest on the collateral which will be invested in short-term
obligations. The Fund pays lending fees 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.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the consideration which can be
earned from such loans is believed to justify the attendant risks. The Fund
would not lend any portfolio securities to brokers affiliated with the Adviser.
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, whole or in part
as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
REPURCHASE AGREEMENTS
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. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are fully
collateralized by the underlying debt securities and are be considered to be
loans under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Fund pays for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities marked-to-market daily at not less than the repurchase
price. The underlying securities (normally securities of the U.S. Government, or
its agencies and instrumentalities) may have maturity dates exceeding one year.
The Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights
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<PAGE> 66
thereto, (b) possible lack of access to income on the underlying security during
this period, and (c) expenses of enforcing its rights. See "Investment
Practices -- Repurchase Agreements" in the Prospectus for further information.
See "Investment Practices -- Repurchase Agreements" in the Prospectus for
further information.
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 subject to the Forward Commitment and the
securities 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 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 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 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.
INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian. If the Fund enters
into an interest rate swap on other than a net basis, the Fund would maintain a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. Interest rate transactions do not
constitute senior securities under the 1940 Act when the Fund segregates assets
to cover the obligations under the transactions. The Fund will enter into
interest rate swap, cap or floor transactions only with counterparties approved
by the Trustees. The Adviser will monitor the creditworthiness of counterparties
to its interest rate swap, cap, floor and collar transactions on an ongoing
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction. To the extent the Fund sells (i.e., writes) caps, floors and
collars, it will maintain in a segregated account cash or liquid securities
having an aggregate net asset value at least equal to the full amount, accrued
on a daily basis, of the Fund's net obligations with respect to the caps, floors
or collars. The use of interest rate swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Adviser is incorrect in
its forecasts of the market values, interest rates and other applicable factors,
the investment performance of the Fund would diminish compared with what it
would have been if these investment techniques were not used. The use of
interest rate swaps, caps, collars and floors may also have the effect of
shifting the recognition of income between current and future periods.
These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive.
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<PAGE> 67
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
CALL AND PUT OPTIONS
Call and put options on various U.S. Treasury notes and U.S. Treasury bonds
are listed and traded on exchanges, and are written in over-the-counter
transactions. Call and put options on mortgage-related securities are currently
written or purchased only in over-the-counter transactions.
SELLING CALL AND PUT OPTIONS
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 sells 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 seller 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 less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could 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 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 underlying 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.
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 (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire. 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
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<PAGE> 68
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 (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of the
Fund's assets generally. The Fund will not purchase call or put options on
securities if as a result, more than 10% of its net assets would be invested in
premiums on such options.
The Fund may purchase either listed or over-the-counter options.
RISK FACTORS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT SECURITIES
Treasury Bonds and Notes. Because trading interest 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 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. Should this occur, the
Fund will purchase additional mortgage-related securities from the same pool (if
obtainable) or replacement mortgage-related securities in the cash market in
order to maintain its cover. A mortgage-related security held by the Fund to
cover an option position in any but the nearest expiration month may cease to
represent cover for the option in the event of a decline in the coupon rate at
which new pools are originated under the FHA/VA loan ceiling in effect at any
given time. If this should occur, the Fund will no longer be covered, and the
Fund will either enter into a closing purchase transaction or replace such
mortgage-related security with a mortgage-related security which represents
cover. When the Fund closes its position or replaces such mortgage-related
security, it may realize an unanticipated loss and incur transaction costs.
INTEREST RATE FUTURES CONTRACTS
The Fund could 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."
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, U.S. Treasury notes, U.S. Treasury bills and GNMA Certificates)
at a specified future time and at a specified price. Interest rate futures
contracts also include cash settlement contracts based upon a specified interest
rate such as the London interbank offering rate for dollar deposits or LIBOR.
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 will be required to deposit with its
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<PAGE> 69
Custodian in an account in the brokers' name an amount of cash or liquid
securities equal to not more than 5% of the contract amount. This amount is
known as initial margin. The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transaction. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract, which is returned to the
Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, will be made on a daily basis as the price of the underlying
securities fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as marking to market.
For example, when the Fund has purchased a futures contract and the price
of the underlying security has risen, that position will have increased in
value, and the Fund will receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the value of the underlying security has declined, the
position would be less valuable, and the Fund would be required to make a
variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is 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, the sale of futures contracts would
substantially reduce the risk to the Fund of a market decline and, by so doing,
provide an alternative to the liquidation of securities positions in the Fund.
Ordinarily commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of mortgage-related and U.S. Government
securities.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in listed options, futures or related options, the Fund could
experience delays and/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.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities 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 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.
B-9
<PAGE> 70
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities 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 underlying the
futures contract. Second, from the point of view of speculators, the deposit
requirements in the futures markets 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 judged over a very short
time frame.
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 in the Prospectus,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
The Fund will not enter into futures or options (except for closing
transactions) for other than 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 current 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 minimize 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
B-10
<PAGE> 71
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. The purchase of call options on futures contracts would be intended to
serve the same purpose as the actual purchase of the futures contract.
RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above which apply to all options
transactions, there are several special risks relating to options on futures.
The 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, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS OF OPTIONS AND FUTURES TRANSACTIONS
Each of the 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 along 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 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which may not be changed
without approval by the vote of a majority of its outstanding voting shares,
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 are present or represented by proxy; or (ii) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities. These restrictions provide that the Fund shall not:
1. 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 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".
2. Borrow in excess of 5% of the market or other fair value of its total
assets; or pledge its assets to an extent greater than 5% of the market
or other fair value of its total assets. Any such borrowings shall be
from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Margin deposits or payments in
connection with the writing of options, or in connection with the
purchase or sale of futures contracts and related options, are not
deemed to be a pledge or other encumbrance.
3. Make any investment in real estate except that the Fund may purchase or
sell securities which are secured by real estate.
B-11
<PAGE> 72
4. Make any investment which would cause more than 25% of the market or
other fair value of its total assets to be invested in the securities of
issuers all of which conduct their principal business activities in the
same industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
5. Invest more than 5% of its assets in the securities of any one issuer
(except the U.S. Government, its agencies and instrumentalities) or
purchase more than 10% of the outstanding voting securities of any one
issuer, 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. Purchase or sell commodities or commodity contracts except that the
Fund may enter into transactions in options, futures contracts or
related options including forward commitments.
7. Underwrite securities of other companies, except insofar as the Fund
might be deemed to be an underwriter for purposes of the Securities Act
of 1933, as amended (the "1933 Act") in the resale of any securities
owned by the Fund.
8. 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 10% 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
purchase futures contracts or related options if more than 30% of the
Fund's total assets would be so invested.
9. Make loans of money or securities, except (a) by investment in
repurchase agreements in accordance with applicable requirements set
forth in the Fund's Prospectus or (b) by lending its portfolio
securities in amounts not to exceed 33 1/3% of the Fund's total assets,
provided that such loans are secured by cash collateral that is at least
equal to the market value. See "Repurchase Agreements" and "Lending of
Securities" herein and "Investment Practices" in the Prospectus.
The Fund has adopted additional investment restrictions, which may be
changed by the Trustees without a vote of shareholders, as follows:
1. Make short sales of securities, unless at the time of the sale the Fund
owns an equal amount of such securities. Notwithstanding the foregoing,
the Fund may make short sales by entering into forward commitments for
hedging or cross-hedging purposes and engage in transactions in options,
futures contracts and related options.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. Transactions in forward commitments, options,
interest rate futures contracts and options on such contracts, including
deposits or payments by the Fund of initial or maintenance margin in
connection with any such transaction, are not considered to be purchases
of securities on margin.
3. Invest in securities of any company if any officer or director of the
Fund or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and directors own in the
aggregate more than 5% of the outstanding securities of such issuer.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs.
B-12
<PAGE> 73
5. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition and, except that the Fund may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
6. Purchase an illiquid security if, as a result of such purchase, more
than 15% of the Fund's net assets would be invested in such securities.
Illiquid securities include securities subject to legal or contractual
restrictions on resale, which include repurchase agreements which have a
maturity of longer than seven days.
7. Invest in warrants or rights except where acquired in units or attached
to other securities. This restriction does not apply to options, futures
contracts or related options.
8. Purchase securities of unseasoned issuers, including their predecessors
or sponsors, which have been in operation for less than three years, and
equity securities of issuers which are not readily marketable if by
reason thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets, 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.
B-13
<PAGE> 74
TRUSTEES AND OFFICERS
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and other executive officers of the Fund's investment
adviser and their principal occupations for the last five years and their
affiliations, if any, with VK/AC Holding, Inc. ("VKAC Holding"), Van Kampen
American Capital, Inc. ("Van Kampen American Capital" or "VKAC"), Van Kampen
American Capital Investment Advisory Corp. ("Advisory Corp."), Van Kampen
American Capital Asset Management, Inc. ("Asset Management"), Van Kampen
American Capital Distributors, Inc., the distributor of the Fund's shares (the
"Distributor"), Van Kampen American Capital Advisors Corp., Van Kampen Merritt
Equity Advisors Corp., Van Kampen American Capital Insurance Agency of Illinois,
Inc., VK/AC System, Inc., Van Kampen American Capital Record Keeping Services,
Inc., American Capital Contractual Services, Inc., Van Kampen American Capital
Trust Company, Van Kampen American Capital Exchange Corporation, and ACCESS
Investors Services Inc., the Fund's transfer agent ("ACCESS"). 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.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley, Dean
66th Floor Witter, Discover & Co. Mr. DeMartini is a Director of
New York, NY 10048 InterCapital Funds, Dean Witter Distributors, Inc. and
Date of Birth: 10/12/52 Dean Witter Trust Company. Trustee of the TCW/DW Funds.
Director of the National Healthcare Resources, Inc.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc.
Trustee/Director of each of the funds in the Fund
Complex.
Linda Hutton Heagy........................ Co-Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
</TABLE>
B-14
<PAGE> 75
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management
Inc. Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen American Capital
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex, and other open-end and closed-end funds
advised by the Advisers or Van Kampen American Capital
Management, Inc.
</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. Mr. DeMartini is an
interested person of the Fund and the Advisers by reason of his position with
Dean Witter Capital and its affiliates.
B-15
<PAGE> 76
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President Executive Vice President and a Director of
Date of Birth: 05/20/42 VKAC and VK/AC Holding, Inc. President,
Chief Operating Officer and a Director of
the Advisers, Van Kampen American Capital
Advisors, Inc., and Van Kampen American
Capital Management, Inc. President and a
Director of Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, he
was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to
November 1996, Executive Vice President and
a Director of VKAC Holding. Prior to July
of 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds
in the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers,
Date of Birth: 06/25/56 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Prior to July of 1996, Mr.
Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of
McCarthy, Crisanti & Maffei, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
</TABLE>
B-16
<PAGE> 77
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VKAC and VK/AC
Holding, Inc. Mr. Nyberg is also Executive
Vice President, General Counsel and a
Director of Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel, Assistant Secretary and a
Director of the Advisers and the
Distributor, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American
Capital Exchange Corporation, American
Capital Contractual Services, Inc. and Van
Kampen American Capital Trust Company.
Executive Vice President, General Counsel
and Assistant Secretary of ACCESS. Director
or officer of certain other subsidiaries of
VKAC. Prior to June of 1997, Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to April of 1997,
he was Executive Vice President, General
Counsel and Director of Van Kampen Merritt
Equity Advisors Corp. Prior to July of
1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc.
and Executive Vice President and General
Counsel of VCJ Inc. Prior to September of
1996, he was General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers,
Date of Birth: 04/20/42 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Vice President of each of
the funds in the Fund Complex and certain
other investment companies advised by the
Advisers or their affiliates.
Paul R. Wolkenberg.......... Vice President Executive Vice President and Director of
Date of Birth: 11/10/44 VKAC, and VK/AC Holding Inc. Executive Vice
President of the AC Adviser and the
Distributor. President and a Director of
ACCESS. President and Chief Operating
Officer of Van Kampen American Capital
Record Keeping Services, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
B-17
<PAGE> 78
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers and
Date of Birth: 01/11/56 Financial Officer Van Kampen American Capital Management,
Inc. Vice President and Chief Financial
Officer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
Nicholas Dalmaso............ Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 03/01/65 and Assistant Secretary of VKAC. Vice
President, Associate General Counsel and
Assistant Secretary of the Advisers, the
Distributor, Van Kampen American Capital
Advisors, Inc. and Van Kampen American
Capital Management, Inc. Assistant
Secretary of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.
Huey P. Falgout, Jr......... Assistant Secretary Vice President and an Attorney of VKAC.
Date of Birth: 11/15/63 Assistant Vice President and Assistant
Secretary of the Advisers, the Distributor,
ACCESS, Van Kampen American Capital
Management, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation and
Van Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>
B-18
<PAGE> 79
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC and
VKAC Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary of the
Advisers, the Distributor, ACCESS, American
Capital Contractual Services, Inc., Van
Kampen American Capital Management, Inc.,
Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VKAC
System, Inc., Van Kampen American Capital
Record Keeping Services, Inc. and Van
Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and
Van Kampen Merritt Holdings Corp. Prior to
September of 1996, Mr. Martin was Deputy
General Counsel and Secretary of McCarthy,
Crisanti & Maffei, Inc., and prior to July
of 1996, he was Senior Vice President,
Deputy General Counsel and Secretary of VSM
Inc. and VCJ Inc. Assistant Secretary of
each of the funds in the Fund Complex and
other investment companies advised by the
Advisers or the affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
Steven M. Hill.............. Assistant Treasurer Vice President of the Advisers. Assistant
Date of Birth: 10/16/64 Treasurer of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.
Michael Robert Sullivan..... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 66 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each
B-19
<PAGE> 80
trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley (each a "Non-Affiliated Trustee") is
compensated by an annual retainer and meeting fees for services to the funds in
the Fund Complex. Each fund in the Fund Complex (except the money market series
of the MS Funds) 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 MS Funds) 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 trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
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 MS Funds)
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.
For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such 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.
For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such 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.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
B-20
<PAGE> 81
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
The trustees/directors were subject to a voluntary aggregate compensation
cap with respect to funds in the Fund Complex of $84,000 per Non-Affiliated
Trustee per year (excluding any retirement benefits) for the period July 22,
1995 through December 31, 1996, subject to the net assets and the number of
funds in the Fund Complex as of July 21, 1995 and certain other exceptions. For
the calendar year ended December 31, 1996, certain trustees/directors received
aggregate compensation from the funds in the Fund Complex over $84,000 due to
compensation received but not subject to the cap, including compensation from
new funds added to the Fund Complex after July 22, 1995 and certain special
meetings in 1996. In addition, each of Advisory Corp. or Asset Management, as
the case may be, agreed to reimburse each fund in the Fund Complex through
December 31, 1996 for any increase in the aggregate compensation over the
aggregate compensation paid by such fund in its 1994 fiscal year, provided that
if a fund did not exist for the entire 1994 fiscal year appropriate adjustments
will be made.
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. Asset Management had reimbursed each AC Fund for the expenses related to
the retirement plan through December 31, 1996.
B-21
<PAGE> 82
Additional information regarding compensation and benefits for trustees is
set forth below. As indicated in the notes accompanying the table, the amounts
relate to either the Fund's most recently completed fiscal year or the Fund
Complex' most recently completed calendar year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1992 $1,322 30,328 $60,000 $104,875
Linda Hutton Heagy* 1995 1,322 3,141 60,000 104,875
Dr. Roger Hilsman 1992 422 52,273 49,250 103,750
R. Craig Kennedy* 1995 1,322 2,229 60,000 104,875
Donald C. Miller 1995 422 24,620 21,000 104,875
Jack E. Nelson* 1995 1,322 15,820 60,000 97,875
Jerome L. Robinson 1995 1,322 32,020 15,750 101,625
Phillip B. Rooney* 1997 600 0 60,000 0
Dr. Fernando Sisto* 1992 1,322 60,208 60,000 104,875
Wayne W. Whalen* 1995 1,322 10,788 60,000 104,875
William S. Woodside 1992 422 61,936 49,250 104,875
</TABLE>
- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.
(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Fund's
most recently completed fiscal year. Mr. Robinson retired from the Board of
Trustees on December 31, 1997. Messrs. Hilsman, Miller and Woodside retired
from the Board of Trustees on December 31, 1996. Messrs. DeMartini and
McDonnell also trustees of the Fund during all or a portion of the Fund's
last fiscal year, are not included in the compensation table because they
are affiliated persons of the Advisers and are not eligible for compensation
or retirement benefits from the Fund.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended September 30, 1997.
The following trustees deferred compensation from the Fund during the fiscal
year ended September 30, 1997: Mr. Branagan, $1,322; Ms. Heagy, $1,146; Mr.
Kennedy, $450; Mr. Miller, $422; Mr. Nelson, $1,322; Mr. Robinson, $1,322;
Mr. Rooney, $300; Dr. Sisto, $450; and Mr. Whalen, $1,322. Amounts deferred
are retained by the Fund and earn a rate of return determined by reference
to either the return on the common shares of the Fund or other funds in the
Fund Complex as selected by the respective Non-Affiliated Trustee, with the
same economic effect as if such Non-Affiliated Trustee had invested in one
or more funds in the Fund Complex. To the extent permitted by the 1940 Act,
each Fund may invest in securities of those funds selected by the Non-
Affiliated Trustees in order to match the deferred compensation obligation.
The cumulative deferred compensation (including interest) accrued with
respect to each trustee, including former trustees, from the Fund as of
September 30, 1997 is as follows: Mr. Branagan, $1,540; Dr. Caruso, $3,356;
Mr. Gaughan, $358; Ms. Heagy, $2,619; Mr. Kennedy, $1,691; Mr. Miller,
$1,891; Mr. Nelson, $3,309; Mr. Rees, $293; Mr. Robinson, $3,172; Mr.
Rooney, $309; Dr. Sisto, $5,484; and Mr. Whalen, $3,207. The deferred
compensation plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for their respective fiscal years ended in 1997. The retirement
plan is described above the Compensation Table.
(4) For Messrs. Hilsman, Miller and Woodside, this is the sum of the actual
annual benefits payable by the operating investment companies in the Fund
Complex as of December 31, 1996 for each year of the
B-22
<PAGE> 83
10-year period since such trustee's retirement. For the remaining trustees,
this is the sum of the estimated maximum annual benefits payable by the
operating investment companies in the Fund Complex for each year of the
10-year period commencing in the year of such trustee's anticipated
retirement. The Retirement Plan is described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1996 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. As
described in the narrative preceding the table, the Fund Complex has
increased in size since December 31, 1996. It is likely the aggregate
compensation from the Fund Complex for the calendar year ending December 31,
1997 will be higher due to the increased size of the Fund Complex during
1997. The trustees recently reviewed and adopted a standardized compensation
and benefits program to become effective January 1, 1998 which program is
described in more detail in the narrative preceding this table. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1996. 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
trustees' Fund Complex compensation cap covered the period July 22, 1995
through December 31, 1996. For the calendar year ended December 31, 1996,
certain trustees received compensation over $84,000 in the aggregate due to
compensation received but not subject to the cap, including compensation
from new funds added to the Fund Complex after July 22, 1995 and certain
special meetings in 1996. The Advisers and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell and Whalen, the 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 $243,375 during the calendar year ended December 31,
1996.
As of January 21, 1998, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund. As of January 21, 1998, no trustee
or officer of the Fund owns or would be able to acquire 5% or more of the common
stock of VK/AC Holding, Inc. Mr. McDonnell owns, or has the opportunity to
purchase, an equity interest in VK/AC Holding, Inc., the parent company of Van
Kampen American Capital, and has entered into an employment contract (for a term
until February 17, 1998) with Van Kampen American Capital.
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois).
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 its assets, including the placing of orders
for the purchase and sale of portfolio securities. The Adviser obtains and
evaluates economic, statistical, and financial information to formulate and
implement the Fund's investment programs. The Adviser also furnishes at no cost
to the Fund (except as noted herein) the services of sufficient executive and
clerical personnel for the Fund as are necessary to prepare registration
statements, prospectuses, shareholder reports and notices and proxy solicitation
material. In addition, the Adviser furnishes at no cost to the Fund the services
of the Fund's President, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which include maintaining its financial books and records and
calculating its 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. A portion of
B-23
<PAGE> 84
these amounts will be paid to the Adviser or its parent in reimbursement of
personnel, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services provided by the Adviser are at
cost. The Fund also pays service fees, distribution fees, custodian fees, legal
and auditing fees, the costs of reports to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser. The Advisory
Agreement also provides that the Adviser shall not be liable to the Fund for any
actions or omissions if it acted without bad faith, negligence or reckless
disregard of its obligations.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed at the annual rate of 0.60% of average daily net assets
of the Fund.
The Fund's average net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of VK/AC
Holding, Inc. in connection with the purchase and sale of portfolio investments
of the Fund, less any direct expenses incurred by such subsidiary of VK/AC
Holding, Inc. in connection with obtaining such commissions, fees, brokerage or
similar payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc. to receive in connection with
the Fund's portfolio transactions or other arrangements which may benefit the
Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year should exceed the most
restrictive expense limitation applicable in the states where the Fund's shares
are qualified for sale, the Adviser's monthly compensation will be reduced by
the amount of such excess and that, if the amount of such excess exceeds the
Adviser's monthly compensation, the Adviser will pay the Fund an amount
sufficient to make up the deficiency, subject to readjustment during the Fund's
fiscal year. Ordinary business expenses include the investment advisory fee and
other operating costs paid by the Fund except (1) interest and taxes, (2)
brokerage commissions, (3) certain litigation and indemnification expenses as
described in the Advisory Agreement and (4) payments made by the Fund pursuant
to the distribution plans.
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 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 September 30, 1995, 1996 and 1997, the
Adviser received $1,874,427, $1,520,100 and $1,154,038, respectively, in
advisory fees from the Fund. For such periods, the Fund paid $91,294, $91,255
and $43,303, respectively, for accounting services. A substantial portion of
these amounts was paid to the Adviser in reimbursement of personnel, facilities
and equipment costs attributable to the provision of accounting services to the
Fund.
DISTRIBUTOR
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. 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) by the Fund's Trustees or by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of Trustees who are not parties to
B-24
<PAGE> 85
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. Advantage Capital Corporation is a
former affiliated dealer of the Fund.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
AMOUNTS RECEIVED BY
TOTAL UNDERWRITING RETAINED ADVANTAGE CAPITAL
COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------ -------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended September 30, 1995......... $ 149,797 $ 13,180 $ 18,783
Fiscal Year Ended September 30, 1996......... $ 84,232 $ 9,317 $ 2,179
Fiscal Year Ended September 30, 1997......... $ 37,964 $ 4,329 N/A
</TABLE>
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through an agreement (the "Distribution and Service Agreement") with the
Distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
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 Distributor has entered into agreements with (i) The Prudential
Insurance Company of America ("Prudential") under which the Fund shall be
offered pursuant to the PruArray Programs and (ii) Merrill Lynch ("Merrill")
under which the Fund shall be offered pursuant to the Merrill Program. Trustees
and other fiduciaries of retirement plans seeking to invest in multiple fund
families through broker-dealer retirement plan alliance programs should contact
Prudential or Merrill for further information concerning the PruArray and
Merrill Programs including, but not limited to, minimum size and operational
requirements.
For the fiscal year ended September 30, 1997, the Fund's aggregate expenses
under the Class A Plan were $102,267 or 0.25% of the Class A shares' average net
assets. For the fiscal year ended September 30,
B-25
<PAGE> 86
1997, the Fund's aggregate expenses under the Class B Plan were $1,349,816 or
1.00% of the Class B shares' average net assets. Such expenses were paid to
reimburse the Distributor for the following payments: $936,872 for commissions
and transaction fees paid to financial intermediaries in respect of sales of
Class B shares of the Fund and $445,392 for fees paid to financial
intermediaries for servicing Class B shareholders and administering the Plans.
For the fiscal year ended September 30, 1997, the Fund's aggregate expenses
under the Plans for Class C shares were $157,579 or 1.00% of the Class C shares'
average net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $71,931 for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class C shares of the Fund and
$137,950 for fees paid to financial intermediaries for servicing Class C
shareholders and administering the Class C Plan.
TRANSFER AGENT
During the fiscal years ended September 30, 1995, 1996 and 1997, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund received
fees aggregating $381,420, $321,627 and $217,980, respectively, for these
services. These services are provided at cost plus a profit.
PORTFOLIO TURNOVER
The 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.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The turnover rate will fluctuate over time
depending upon the Adviser's investment strategy and the higher volatility of
the market for government securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of the
commissions, if any, paid on such transactions. It is the policy of the Adviser
to seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Fund may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund as a factor in the
selection of firms to execute portfolio transactions for the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).
Pursuant to provisions of the Advisory Agreement, the Fund's Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of
B-26
<PAGE> 87
supplemental investment research services from dealers is essential to its
provision of high quality portfolio management services to the Fund. The Adviser
undertakes that such higher commissions will not be paid by the Fund unless (a)
the Adviser determines in good faith that the amount is reasonable in relation
to the services in terms of the particular transaction or in terms of the
Adviser's overall responsibilities with respect to the accounts as to which it
exercises investment discretion, (b) such payment is made in compliance with the
provisions of Section 28(e) and other applicable state and federal laws, and (c)
in the opinion of the Adviser, the total commissions paid by the Fund are
reasonable in relation to the expected benefits to the Fund over the long term.
The investment advisory fee paid by the Fund under the investment advisory
agreement is not reduced as a result of the Adviser's receipt of research
services.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by the
Adviser in servicing all of its accounts; not all of such services may be used
by the Adviser in connection with the Fund. In the opinion of the Adviser, the
benefits from research services to each of the accounts (including the Fund)
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Adviser are the respective investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.
During the year ended September 30, 1997, the Fund did not pay brokerage
commissions on transactions to brokers selected primarily on the basis of
research services provided to the Adviser.
Prior to December 20, 1994, the Fund placed brokerage transactions with
brokers who were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December
20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the
Adviser. Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Discover & Co. ("Dean Witter") became an affiliate of the Adviser. The
negotiated commission paid to an affiliated broker on any transaction would be
comparable to that payable to a non-affiliated broker in a similar transaction.
The Fund paid the following commissions to these brokers during the periods
shown:
<TABLE>
<CAPTION>
AFFILIATED BROKERS
---------------------------------------
MORGAN DEAN SMITH ROBINSON
BROKERS STANLEY WITTER BARNEY HUMPHREY
-------- ---------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Fiscal year 1995.............................. $ 38,381 N/A N/A $ 0 0
Fiscal year 1996.............................. $116,649 N/A N/A N/A N/A
Fiscal year 1997.............................. $ 69,434 0 0 N/A N/A
Fiscal year 1997 Percentages:
Commissions with affiliate to total
commissions.............................. N/A N/A N/A N/A N/A
Value of brokerage transactions with
affiliate to total transactions.......... N/A N/A N/A N/A N/A
</TABLE>
B-27
<PAGE> 88
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each
business day on which the Exchange is open.
The types of mortgage-related securities in which the Fund invests, as well
as U.S. Government securities, are traded in the over-the-counter market and are
valued at the last available bid price. Such valuations are based on quotations
of one or more dealers that make markets in the securities as obtained from such
dealers or from a pricing service. Options, futures contracts and options
thereon, which are traded on exchanges, are valued at their last sale or
settlement price as of the close of such exchanges or if no sales are reported,
at the mean between the last reported bid and asked prices. Securities with a
remaining maturity of 60 days or less are valued on an amortized cost basis,
which approximates market value.
Securities (as well as over-the-counter options) and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Trustees of the Fund.
Such valuations and procedures are reviewed periodically by the Trustees.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."
CLASS A SHARES -- REDUCED SALES CHARGE
THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN ORDER IS PLACED FOR A
PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE BASIS OF PREVIOUS
PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN SUCH AN ORDER IS
PLACED BY MAIL. The reduced sales charge will not be applied if such
notification is not furnished at the time of the order. The reduced sales charge
will also not be applied should a review of the records of the Distributor or
ACCESS fail to confirm the representations concerning the investor's holdings.
LETTER OF INTENT
The Fund will escrow shares totaling 5% of the dollar amount of the Letter
of Intent to be held by ACCESS in the name of the shareholder. The Letter of
Intent does not obligate the investor to purchase the indicated amount. In the
event the Letter of Intent goal is not achieved within the 13-month period, the
investor is required to pay the difference between sales charges otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such difference.
If the goal is exceeded in an amount which qualifies for a lower sales charge, a
price adjustment is made by refunding to the investor in shares of the Fund, the
amount of excess sales charges, if any, paid during the 13-month period.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
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
B-28
<PAGE> 89
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 "Purchase of Shares," redemption of
Class B shares and Class C shares will be subject to a CDSC. The CDSC-Class B
and C may be waived on redemptions of Class B shares and Class C shares in the
circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Internal Revenue Code (the "Code"), which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC-Class B and C.
In cases of disability or death, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge may be waived upon the tax-free rollover or transfer of assets
to another Retirement Plan invested in one or more Participating Funds (as
defined in the Prospectus); 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), or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC-Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
B-29
<PAGE> 90
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.
(d) Involuntary Redemptions of Shares in Accounts That Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
180 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. Van Kampen American Capital and its
subsidiaries, including ACCESS, and the Fund employ procedures considered by
them to be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen American Capital, ACCESS nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital, ACCESS and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the 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 his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
B-30
<PAGE> 91
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form and return both documents to ACCESS before checks will be
issued. All signatures on the authorization card must be guaranteed if any of
the signatures are persons not referenced in the account registration or if more
than 30 days have elapsed since ACCESS established the account on its records.
Moreover, if the shareholder is a corporation, partnership, trust, fiduciary,
executor or administrator, the appropriate documents appointing authorized
signers (corporate resolutions, partnerships or trust agreements) must accompany
the authorization card. The documents must be certified in original form, and
the certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
TAX STATUS OF THE FUND
The Trust and each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if, among other things, it fails to distribute net capital gains, or if
its annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.
FUND PERFORMANCE
The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for (i) the one year period ended
September 30, 1997 was 3.01% and (ii) the four year, eleven month period since
November 2, 1992, the date the Fund's investment strategy was implemented,
through September 30, 1997 was 4.31%. The Fund's average annual total return
(computed in the manner described in the Prospectus) for Class B shares of the
Fund for (i) the one year period ended September 30, 1997 was 3.43% and (ii) the
four year, eleven month period since November 2, 1992, the date the Fund's
investment strategy was implemented, through September 30, 1997 was 4.30%. The
Fund's average annual total return (computed in the manner described in the
Prospectus) for Class C shares of the Fund for (i) the one year period ended
September 30, 1997 was 6.43% and (ii) the four year, 5 1/2 month period since
April 12, 1993, the commencement of distribution for Class C shares of the Fund,
through September 30, 1997 was 3.87%. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices.
The annualized current yield for Class A shares, Class B shares and Class C
shares of the Fund for the 30-day period ending September 30, 1997, was 5.39%,
4.89% and 4.89%, respectively. The yield for Class A shares, Class B shares and
Class C shares 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 and total return are computed separately for Class A shares, Class B
shares and Class C shares.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of
B-31
<PAGE> 92
return. Such illustrations may be in the form of charts or graphs and will not
be based on historical returns experienced by the Fund.
OTHER INFORMATION
CUSTODY OF ASSETS -- 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 -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Fund, performs an
annual audit of the Fund's financial statements.
B-32
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
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 American Capital U.S.
Government Trust for Income (the "Fund") at September 30, 1997, 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 September 30, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
November 14, 1997
B-33
<PAGE> 94
PORTFOLIO OF INVESTMENTS
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS 9.2%
$ 2,368 Capstead Mortgage,
Series 93-2CA3........................ 9.709% 08/25/23 $ 2,406,001
4,444 Prudential Home Mortgage Securities,
Series 93-23A7........................ 10.000 06/25/08 4,614,602
8,817 Salomon Brothers Mortgage Securities,
Series 93-5A3 (a)..................... 7.363 10/25/03 8,913,958
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS.......................... 15,934,561
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 32.1%
9,475 Federal Home Loan Mortgage Corp.
Gold 30 Year Pool..................... 6.500 02/01/26 to 05/01/26 9,241,033
9,990 Federal National Mortgage Association
CMO, Series 94-87..................... 6.075 03/25/09 10,016,769
7,494 Federal National Mortgage Association
15 Year Pool.......................... 7.000 10/01/09 7,583,479
1,708 Federal National Mortgage Association
Pool.................................. 8.500 01/01/22 to 09/01/24 1,784,022
12,156 Government National Mortgage
Association Pool...................... 8.000 03/15/23 to 08/15/24 12,566,313
2,762 Government National Mortgage
Association Pool...................... 8.000 10/15/21 to 09/15/22 2,869,885
5,837 Government National Mortgage
Association Pool...................... 8.500 12/15/17 6,201,533
5,062 Government National Mortgage
Association Pool...................... 9.000 03/15/18 to 12/15/29 5,452,222
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS.................. 55,715,256
------------
UNITED STATES TREASURY OBLIGATIONS 57.7%
12,500 United States Treasury Bonds (a)...... 10.750 08/15/05 16,031,250
11,500 United States Treasury Bonds (a)...... 7.625 02/15/25 13,174,745
22,000 United States Treasury Notes (a)...... 11.625 11/15/02 27,369,320
5,500 United States Treasury Notes (a)...... 9.250 08/15/98 5,664,120
27,500 United States Treasury Notes (a)...... 8.000 08/15/99 28,544,175
9,500 United States Treasury Notes (a)...... 8.750 10/15/97 9,510,355
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS........................... 100,293,965
------------
TOTAL LONG-TERM INVESTMENTS 99.0%
(Cost $172,492,883)........................................................... 171,943,782
------------
REPURCHASE AGREEMENT 0.3%
SBC Warburg ($660,000 par collateralized by U.S. Government obligations in a
pooled cash account, dated 09/30/97, to be sold on 10/01/97 at $660,111)... 660,000
------------
TOTAL INVESTMENTS 99.3%
(Cost $173,152,883)........................................................... 172,603,782
------------
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%...................................... 1,145,528
------------
NET ASSETS 100.0%............................................................... $173,749,310
============
</TABLE>
(a) Assets segregated as collateral for open futures and forwards transactions.
B-34 See Notes to Financial Statements
<PAGE> 95
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Total Investments (Cost $173,152,883).......................... $ 172,603,782
Cash........................................................... 371
Receivables:
Interest..................................................... 2,385,711
Fund Shares Sold............................................. 27,205
Other........................................................ 44
Forward Commitments............................................ 182,459
Other.......................................................... 98
-------------
Total Assets............................................... 175,199,670
-------------
LIABILITIES:
Payables:
Income Distributions......................................... 581,353
Fund Shares Repurchased...................................... 503,367
Distributor and Affiliates................................... 175,213
Investment Advisory Fee...................................... 86,063
Variation Margin on Futures.................................. 11,784
Accrued Expenses............................................... 61,483
Trustees Deferred Compensation and Retirement Plans............ 31,097
-------------
Total Liabilities.......................................... 1,450,360
-------------
NET ASSETS..................................................... $ 173,749,310
=============
NET ASSETS CONSIST OF:
Capital........................................................ $ 224,057,367
Accumulated Distributions in Excess of Net Investment Income... (108,311)
Net Unrealized Depreciation.................................... (410,480)
Accumulated Net Realized Loss.................................. (49,789,266)
-------------
NET ASSETS..................................................... $ 173,749,310
=============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $38,305,652 and 4,675,547 shares of
beneficial interest issued and outstanding)................ $ 8.19
Maximum sales charge (4.75%* of offering price)............ .41
-------------
Maximum offering price to public........................... $ 8.60
=============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $121,733,517 and 14,869,372 shares of
beneficial interest issued and outstanding)................ $ 8.19
=============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $13,710,141 and 1,674,790 shares of
beneficial interest issued and outstanding)................ $ 8.19
=============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
B-35 See Notes to Financial Statements
<PAGE> 96
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest........................................................ $ 15,210,057
Other Income.................................................... 465,664
------------
Total Income............................................... 15,675,721
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $102,267, $1,349,816 and
$157,579, respectively)...................................... 1,609,662
Investment Advisory Fee......................................... 1,154,038
Shareholder Services............................................ 315,399
Custody......................................................... 25,294
Legal........................................................... 17,298
Trustees Fees and Expenses...................................... 14,151
Amortization of Organizational Costs............................ 3,000
Other........................................................... 280,141
------------
Total Expenses............................................. 3,418,983
Less Expenses Reimbursed................................... 1,300
------------
Net Expenses............................................... 3,417,683
------------
NET INVESTMENT INCOME........................................... $ 12,258,038
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments................................................ $ (2,015,612)
Futures.................................................... 158,512
Forward Commitments........................................ (238,770)
------------
Net Realized Loss............................................... (2,095,870)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period....................................... (4,183,278)
------------
End of the Period:
Investments................................................ (549,101)
Futures.................................................... (43,838)
Forward Commitments........................................ 182,459
------------
(410,480)
------------
Net Unrealized Appreciation During the Period................... 3,772,798
------------
NET REALIZED AND UNREALIZED GAIN................................ $ 1,676,928
============
NET INCREASE IN NET ASSETS FROM OPERATIONS...................... $ 13,934,966
============
</TABLE>
B-36 See Notes to Financial Statements
<PAGE> 97
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1997 September 30, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................................... $ 12,258,038 $ 15,824,780
Net Realized Loss................................................... (2,095,870) (3,776,806)
Net Unrealized Appreciation/Depreciation During the Period.......... 3,772,798 (4,230,410)
------------- -------------
Change in Net Assets from Operations................................ 13,934,966 7,817,564
------------- -------------
Distributions from Net Investment Income:
Class A Shares.................................................... (2,842,739) (3,792,860)
Class B Shares.................................................... (8,230,537) (10,629,590)
Class C Shares.................................................... (961,509) (1,389,674)
------------- -------------
(12,034,785) (15,812,124)
------------- -------------
NET CHANGE IN NET ASSETS
FROM INVESTMENT ACTIVITIES........................................ 1,900,181 (7,994,560)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................................... 7,421,625 14,763,888
Net Asset Value of Shares Issued Through Dividend Reinvestment...... 4,910,254 6,411,519
Cost of Shares Repurchased.......................................... (55,107,596) (97,053,619)
------------- -------------
NET CHANGE IN NET ASSETS
FROM CAPITAL TRANSACTIONS......................................... (42,775,717) (75,878,212)
------------- -------------
TOTAL DECREASE IN NET ASSETS........................................ (40,875,536) (83,872,772)
NET ASSETS:
Beginning of the Period............................................. 214,624,846 298,497,618
------------- -------------
End of the Period (Including accumulated distributions in excess of
net investment income of $108,311 and $5,046, respectively........ $ 173,749,310 $ 214,624,846
============= =============
</TABLE>
B-37 See Notes to Financial Statements
<PAGE> 98
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 6, 1992
(Commencement
of Investment
Year Ended September 30, Operations) to
--------------------------------- September 30,
Class A Shares 1997 1996 1995 1994 1993 (a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period..................................... $8.108 $8.38 $8.17 $9.26 $9.43
------ ----- ----- ----- -----
Net Investment Income...................... .567 .565 .63 .67 .81
Net Realized and Unrealized
Gain/Loss............................. .073 (.274) .23 (1.0085) (.1795)
------ ------ ----- ------- ------
Total from Investment Operations................... .640 .291 .86 (.3385) .6305
------ ----- ----- ------ -----
Less:
Distributions from Net Investment
Income................................ .555 .563 .645 .674 .8005
Distributions from Net Realized
Gain.................................. -0- -0- .005 .0775 -0-
------ ----- ----- ----- -----
Total Distributions................................ .555 .563 .65 .7515 .8005
------ ----- ----- ----- -----
Net Asset Value, End of the Period................. $8.193 $8.108 $8.38 $ 8.17 $9.26
====== ===== ===== ===== =====
Total Return (b)................................... 8.09% 3.57% 10.97% (3.82%) 8.07%(c)
Net Assets at End of the Period
(In millions)................................. $38.3 $45.2 $70.2 $75.3 $92.4
Ratio of Expenses to Average Net
Assets (d).................................... 1.18% 1.13% 1.09% 1.07% 1.07%
Ratio of Net Investment Income to
Average Net Assets (d)........................ 6.95% 6.83% 7.67% 7.89% 8.71%
Portfolio Turnover................................. 82% 282% 262% 122% 281%*
</TABLE>
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Total return from November 2, 1992 (date the Fund's investment strategy was
implemented) through September 30, 1993 without annualization.
(d) For the year ended September 30, 1997, the impact of expenses reimbursed by
VKAC was less than 0.01% of average net assets. For the period ended
September 30, 1993, the ratios of expenses and net investment income to
average net assets would have been 1.15% and 8.64%, respectively, had VKAC
not reimbursed certain expenses of the Fund.
B-38 See Notes to Financial Statements
<PAGE> 99
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 6, 1992
(Commencement
of Investment
Year Ended September 30, Operations) to
------------------------------------- September 30,
Class B Shares 1997 1996 1995 1994 1993(a)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................................ $8.104 $8.38 $8.17 $9.26 $9.43
------ ------ ------ ------- ------
Net Investment Income............................. .505 .504 .57 .61 .70
Net Realized and Unrealized
Gain/Loss...................................... .073 (.277) .228 (1.0205) (.1475)
------ ------ ------ ------- ------
Total from Investment Operations...................... .578 .227 .798 (.4105) .5525
------ ------ ------ ------- ------
Less:
Distributions from Net Investment
Income......................................... .495 .503 .583 .602 .7225
Distributions from Net Realized Gain.............. -0- -0- .005 .0775 -0-
------ ------ ------ ------- ------
Total Distributions................................... .495 .503 .588 .6795 .7225
------ ------ ------ ------- ------
Net Asset Value, End of the Period.................... $8.187 $8.104 $8.38 $8.17 $9.26
====== ====== ====== ======= ======
Total Return (b)...................................... 7.43% 2.70% 10.14% (4.61%) 7.24%(c)
Net Assets at End of the Period
(In millions)..................................... $121.7 $150.8 $200.2 $226.7 $242.8
Ratio of Expenses to
Average Net Assets (d)............................ 1.94% 1.89% 1.85% 1.82% 1.81%
Ratio of Net Investment Income to
Average Net Assets (d)............................ 6.20% 6.08% 6.92% 7.11% 7.70%
Portfolio Turnover.................................... 82% 282% 262% 122% 281%*
</TABLE>
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Total return from November 2, 1992 (date the Fund's investment strategy was
implemented) through September 30, 1993 without annualization.
(d) For the year ended September 30, 1997, the impact of expenses reimbursed by
VKAC was less than 0.01% of average net assets. For the period ended
September 30, 1993, the ratios of expenses and net investment income to
average net assets would have been 1.89% and 7.62%, respectively, had VKAC
not reimbursed certain expenses of the Fund.
B-39 See Notes to Financial Statements
<PAGE> 100
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 12, 1996
(Commencement
Year Ended September 30, of Distribution) to
-------------------------------------- September 30,
Class C Shares 1997 1996 1995 1994 1993 (a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $8.104 $ 8.38 $ 8.17 $ 9.25 $ 9.41
------ ------ ------ -------- -------
Net Investment Income............. .503 .502 .57 .63 .33
Net Realized and Unrealized
Gain/Loss....................... .074 (.275) .228 (1.0305) (.1561)
------ ------ ------ -------- -------
Total from Investment Operations.... .577 .227 .798 (.4005) .1739
------ ------ ------ -------- -------
Less:
Distributions from Net Investment
Income.......................... .495 .503 .583 .602 .3339
Distributions from Net Realized
Gain............................ -0- -0- .005 .0775 -0-
------ ------ ------ -------- -------
Total Distributions................. .495 .503 .588 .6795 .3339
------ ------ ------ -------- -------
Net Asset Value, End of the Period.. $8.186 $8.104 $ 8.38 $ 8.17 $ 9.25
====== ====== ====== ======== =======
Total Return (b).................... 7.43% 2.70% 10.14% (4.51%) 2.10%*
Net Assets at End of the Period
(In millions)................... $ 13.7 $ 18.6 $ 28.1 $ 37.5 $ 37.8
Ratio of Expenses to Average Net
Assets (c)...................... 1.94% 1.89% 1.85% 1.82% 1.76%
Ratio of Net Investment Income to
Average Net Assets (c).......... 6.20% 6.08% 6.94% 7.08% 7.26%
Portfolio Turnover.................. 82% 282% 262% 122% 281%*
</TABLE>
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) For the year ended September 30, 1997, the impact of expenses reimbursed by
VKAC was less than 0.01% of average net assets. For the period ended
September 30, 1993, the ratios of expenses and net investment income to
average net assets would have been 1.83% and 7.18%, respectively, had VKAC
not reimbursed certain expenses of the Fund.
B-40 See Notes to Financial Statements
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital U.S. Government Trust for Income (the "Fund") is
organized as a Delaware business trust, and is registered as a diversified open-
end management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek a high level of income by
primarily investing in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund commenced investment
operations on October 6, 1992 with two classes of common shares, Class A and
Class B shares. 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 value using market quotations.
For those securities where quotations or prices are not available, valuations
are determined in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days
or less are valued at amortized cost.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may purchase and sell securities on a "when issued" or "delayed
delivery" basis, with settlement to occur at a later date. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund will maintain, in a segregated account with its custodian, assets having
an aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made. At September 30, 1997,
there were no when issued or delayed delivery purchase commitments.
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 American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian
B-41
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
- --------------------------------------------------------------------------------
bank. The seller is required to maintain the value of the underlying security at
not less than the repurchase proceeds due the Fund.
C. INVESTMENT INCOME-Interest income is recorded on an accrual basis. Original
issue discount is amortized over the expected life of each applicable security.
Premiums on debt securities are not amortized.
D. ORGANIZATIONAL COSTS-The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred
in connection with the Fund's organization in the amount of $15,000. These costs
were amortized on a straight line basis over the 60 month period ending
September 30, 1997.
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 September 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $173,152,883, the aggregate gross unrealized
appreciation is $2,279,257 and the aggregate gross unrealized depreciation is
$2,689,737, resulting in net unrealized depreciation including open futures
transactions and forward commitments of $410,480.
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 these losses against any future realized capital
gains. At September 30, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $48,680,382 which will expire between September
30, 2003 and September 30, 2005. Net realized loss differs for financial and tax
reporting purposes as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
losses recognized for tax purposes on open futures positions at September 30,
1997.
F. DISTRIBUTION OF INCOME AND GAINS-The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on futures transactions. All
short-term capital gains and a portion of futures gains are included in ordinary
income for tax purposes.
Permanent book and tax basis differences relating to the recognition of
gains/losses on paydowns of mortgage pool obligations totaling $371,860 were
reclassified to accumulated distributions in excess of net investment income
from accumulated net realized gain/loss. Permanent
B-42
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
- --------------------------------------------------------------------------------
differences relating to certain expenses which are not deductible for tax
purposes totaling $45,342 were reclassified from accumulated distributions in
excess of net investment income to capital.
Due to inherent differences in the recognition of distributions from income
under generally accepted accounting principles and federal income tax purposes,
the amount of distributable net investment income may differ between book and
federal income tax purposes for a particular period. These differences are
temporary in nature, but may result in distributions in excess of net investment
income for certain periods.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee, payable
monthly, of .60% of the Fund's average daily net assets.
For the year ended September 30, 1997, the Fund recognized expenses of
approximately $17,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1997, the Fund recognized expenses of
approximately $43,300 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
September 30, 1997, the Fund recognized expenses of approximately $218,000,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the year ended September 30, 1997, the Fund paid VKAC
approximately $17,500 related to the direct cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the
Fund of cost efficiencies in shareholder servicing resulting from the
consolidation.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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 equal to $2,500. During the year ended
September 30, 1997, VKAC reimbursed the Fund for expenses related to the
retirement plan.
At September 30, 1997, VKAC owned 5,302 shares each of Classes A and B,
respectively, and 53 shares of Class C.
B-43
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At September 30, 1997, capital aggregated $49,648,102, $154,776,176 and
$19,633,089 for Classes A, B and C, respectively. For the year ended September
30, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 414,895 $ 3,387,293
Class B...................................... 419,235 3,415,948
Class C...................................... 76,387 618,384
---------- -------------
Total Sales.................................... 910,517 $ 7,421,625
========== =============
Dividend Reinvestment:
Class A...................................... 141,435 $ 1,152,447
Class B...................................... 404,778 3,295,398
Class C...................................... 56,785 462,409
---------- -------------
Total Dividend Reinvestment.................... 602,998 $ 4,910,254
========== =============
Repurchases:
Class A...................................... (1,456,979) $ (11,854,279)
Class B...................................... (4,563,587) (37,123,144)
Class C...................................... (753,064) (6,130,173)
---------- -------------
Total Repurchases.............................. (6,773,630) $ (55,107,596)
========== =============
</TABLE>
B-44
<PAGE> 105
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
- --------------------------------------------------------------------------------
At September 30, 1996, capital aggregated $56,972,639, $185,219,741 and
$24,686,046 for Classes A, B and C, respectively. For the year ended September
30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 549,325 $ 4,588,334
Class B...................................... 953,675 7,950,236
Class C...................................... 266,808 2,225,318
----------- -------------
Total Sales.................................... 1,769,808 $ 14,763,888
=========== =============
Dividend Reinvestment:
Class A...................................... 182,960 $ 1,516,218
Class B...................................... 509,206 4,213,922
Class C...................................... 82,271 681,379
----------- -------------
Total Dividend Reinvestment.................... 774,437 $ 6,411,519
=========== =============
Repurchases:
Class A...................................... (3,531,939) $ (29,385,104)
Class B...................................... (6,746,410) (55,996,788)
Class C...................................... (1,403,810) (11,671,727)
----------- -------------
Total Repurchases.............................. (11,682,159) $ (97,053,619)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<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>
B-45
<PAGE> 106
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$4,300 and CDSC on redeemed shares of approximately $451,000. 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 commitment transactions, were
$155,460,730 and $208,060,615, 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 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 futures contract or forward commitment. In these
instances, the recognition of gain or loss is postponed until the disposal of
the security underlying the futures contract or forward commitment.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in exchange traded futures contracts on U.S. Treasury
Bonds and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the
value of the contract (the variation margin).
B-46
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 1997, were as follows:
Contracts
- -------------------------------------------------------------------------------
Outstanding at September 30, 1996.................................. 150
Futures Opened..................................................... 3,576
Futures Closed..................................................... (3,601)
---------
Outstanding at September 30, 1997.................................. 125
=========
The futures contracts outstanding as of September 30, 1997, and the
descriptions and unrealized depreciation are as follows:
Unrealized
Contracts Depreciation
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Long Bond Future, Long Contract
Dec. 1997--(Current Notional Value of $116,200
per contract).................................... 15 $ 13,782
10-Year U.S. Treasury Note Future, Long Contract
Dec. 1997--(Current Notional Value of $110,276
per contract).................................... 55 8,348
5-Year U.S. Treasury Note Future, Short Contract
Dec. 1997--(Current Notional Value of $107,012
per contract).................................... 55 21,708
-------- ---------
125 $ 43,838
======== =========
</TABLE>
B-47
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
- --------------------------------------------------------------------------------
B. FORWARD COMMITMENTS--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Fund and
dealers. While forward commitments are outstanding, the Fund maintains
sufficient collateral of cash or securities in a segregated account with its
custodian. Forward commitments are marked to market on a daily basis with
changes in value reflected as a component of unrealized appreciation/depreci-
ation. The following forward commitments were outstanding as of September 30,
1997:
<TABLE>
<CAPTION>
Par Amount Current Unrealized
(000) Description Value Appreciation
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Contracts
$25,000 U.S. T-Note, 5.75% $24,984,375 $ 0
9,000 FHLMC Gold, 30 Yr., 7.00% 8,980,290 59,040
5,000 FHLMC Gold, 15 Yr., 7.50% 5,112,900 21,494
6,000 FNMA Balloon, 7 Yr., 6.50% 5,988,780 11,280
9,000 FNMA, 7.50% 9,151,920 84,420
Short Contracts
10,000 GNMA, 8.00% 10,337,500 4,688
5,000 FNMA Dwarf, 15 Yr., 7.50% 5,115,650 1,537
---------
$ 182,459
=========
</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 ser vices and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 1997, are payments to VKAC of approximately
$1,012,900.
B-48
<PAGE> 109
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
List of all financial statements and exhibits as part of the Registration
Statement.
(a) Financial Statements:
Included in Part A of Registration Statement:
Financial Highlights
Included in Part B of Registration Statement:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<S> <C>
(1)(a) -- First Amended and Restated Agreement and Declaration of
Trust(8)
(b) -- Certificate of Amendment(8)
(c) -- Amended and Restated Certificate of Designation+
(2) -- Amended and Restated Bylaws(8)
(4)(a) -- Specimen Class A Share Certificate(8)
(b) -- Specimen Class B Share Certificate(8)
(c) -- Specimen Class C Share Certificate(8)
(5) -- Investment Advisory Agreement+
(6)(a) -- Distribution and Service Agreement+
(b) -- Form of Dealer Agreement(9)
(c) -- Form of Broker Fully Disclosed Selling Agreement(9)
(d) -- Form of Bank Fully Disclosed Selling Agreement(9)
(8)(a) -- Custodian Contract+
(b) -- Transfer Agency and Service Agreement+
(9)(a) -- Data Access Services Agreement(9)
(b) -- Fund Accounting Agreement+
(10) -- Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom (Illinois)(9)
(11) -- Consent of Price Waterhouse LLP+
(13) -- Investment Letter(4)
(14)(a) -- Individual Retirement Account Brochure with
Application(5)
(b) -- 403(b)(7) Custodial Account(3)
(c) -- ORP 403(b)(7) Custodial Account(3)
(d) -- Retirement Plans for the Small Business-Forms Package and
Plan Documents(1)
(e) -- Prototype Profit Sharing/Money Purchase Plan and Trust(2)
(f) -- Prototype 401(k) Plan and Trust(2)
(g) -- Salary Reduction Simplified Employee Pension Plan(6)
(h) -- Simplified Employee Pension Plan Brochure with
Application(7)
(15)(a) -- Plan of Distribution Pursuant to Rule 12b-1(9)
(b) -- Form of Shareholder Assistance Agreement(9)
(c) -- Form of Administrative Services Agreement(9)
(d) -- Service Plan(9)
(16) -- Computation of Performance Quotations+
(17)(a) -- List of certain investment companies in response to Item
29(a)+
(b) -- List of officers and directors of Van Kampen American
Capital Distributors, Inc. in response to Item 29(b)+
(18) -- Amended Multi-Class Plan (9)
(24) -- Power of Attorney+
(27) -- Financial Data Schedules+
</TABLE>
- ---------------
C-1
<PAGE> 110
(1) Incorporated herein by reference to Post-Effective Amendment No. 44 to Van
Kampen American Capital Emerging Growth Fund's Registration Statement on
Form N-1A, File No. 2-33214, filed December 21, 1990.
(2) Incorporated herein by reference to Post-Effective Amendment No. 61 to Van
Kampen American Capital Growth and Income Fund's Registration Statement on
Form N-1A, File No. 2-21657, filed March 26, 1991.
(3) Incorporated herein by reference to Post-Effective Amendment No. 30 to Van
Kampen American Capital Reserve Fund's Registration Statement on Form N-1A,
File No. 2-50870, filed September 24, 1992.
(4) Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, File No. 33-49358, filed
September 28, 1992.
(5) Incorporated herein by reference to Post-Effective Amendment No. 31 to Van
Kampen American Capital Reserve Fund's Registration Statement on Form N-1A,
File No. 2-50870, filed September 24, 1993.
(6) Incorporated herein by reference to Post-Effective Amendment No. 9 to Van
Kampen American Capital World Portfolio Series Trust's Registration
Statement on Form N-1A, File No. 33-37879, filed September 24, 1993.
(7) Incorporated herein by reference to Post-Effective Amendment No. 69 to Van
Kampen American Capital Growth and Income Fund's Registration Statement on
Form N-1A, File No. 2-21657, filed March 24, 1994.
(8) Incorporated herein by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A, File No. 33-49358, filed
January 30, 1996.
(9) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A, File No. 33-49358, filed
January 28, 1997.
+Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF JANUARY 21, 1998
<TABLE>
<CAPTION>
(1) (2)
NUMBER OF RECORD HOLDERS
------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
-------------- ------- ------- -------
<S> <C> <C> <C>
Shares of Beneficial Interest, 1,526 4,735 629
$0.01 par value
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office
C-2
<PAGE> 111
(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 "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, 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 Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of Van Kampen American Capital 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 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc. ("the Distributor"), which acts as principal underwriter for
certain investment companies and unit investment trusts set forth in Exhibit
17(a).
(b) Van Kampen American Capital Distributors, Inc. which is an affiliated
person of an affiliated person of Registrant, is the sole principal underwriter
for Registrant. The name, principal business address and positions and offices
with Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17(b). Except as disclosed under the
heading, "Trustees and Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.
(c) Not applicable.
C-3
<PAGE> 112
ITEM 30. 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 One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered, a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL U.S.
GOVERNMENT TRUST FOR INCOME, certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Oakbrook Terrace and State of Illinois,
on the 27th day of January, 1998.
VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST FOR INCOME
By: /s/ RONALD A. NYBERG
------------------------------------
Ronald A. Nyberg, Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on January 27, 1998 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ DENNIS J. McDONNELL* President
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ EDWARD C. WOOD III* Vice President and Chief Financial Officer
- -----------------------------------------------------
Edward C. Wood III
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA H. HEAGY* Trustee
- -----------------------------------------------------
Linda H. Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
</TABLE>
* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.
<TABLE>
<C> <S>
/s/ RONALD A. NYBERG January 27, 1998
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
<PAGE> 114
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 9 TO
FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 28, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
(1)(c) -- Amended and Restated Certificate of Designation
(5) -- Investment Advisory Agreement
(6)(a) -- Distribution and Service Agreement
(8)(a) -- Custodian Contract
(b) -- Transfer Agency and Service Agreement
(9)(b) -- Fund Accounting Agreement
(11) -- Consent of Price Waterhouse LLP
(16) -- Computation of Performance Quotations
(17)(a) -- List of certain investment companies in response to Item
29(a)
(17)(b) -- List of officers and directors of Van Kampen American
Capital Distributors, Inc. in response to Item 29(b)
(24) -- Power of Attorney
(27) -- Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (1)(c)
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
Amended and Restated Certificate of Designation
of
Van Kampen American Capital U.S. Government Trust for Income
The undersigned, being the Secretary of Van Kampen American Capital U.S.
Government Trust for Income, a Delaware business trust (the "Trust"), pursuant
to the authority conferred upon the Trustees of the Trust by Section 6.1 of the
Trust's First Amended and Restated Agreement and Declaration of Trust
("Declaration"), and by the affirmative vote of a Majority of the Trustees does
hereby amend and restate in its entirety the Certificate of Designation of the
Van Kampen American Capital U.S. Government Trust for Income Series of the
Trust dated June 21, 1995 by redesignating the following classes of Shares of
the Trust with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Trust shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Trust. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
4. Conversion. Each Class B Share and certain Class C Shares of the Trust
shall be converted automatically, and without any action or choice on the part
of the Shareholder thereof, into Class A Shares of the Trust at such times and
pursuant to such terms, conditions and restrictions as may be established by
the Trustees and as set forth in the Trust's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
1
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of the
Trust may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Trust unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled
to vote or, if such amendment affects the Shares of one or more but not all of
the Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
December 12, 1996
/s/ Ronald A. Nyberg
-----------------------------
Ronald A. Nyberg, Secretary
2
<PAGE> 1
EXHIBIT (5)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME, a Delaware business trust
(hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the
FUND's Trustees and in conformity with applicable laws, the FUND's Agreement
and Declaration of Trust ("Declaration of Trust"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including,
by way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale
of portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by
way of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
FUND selected by the Trustees, and the supervision of the FUND's Treasurer and
the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and Fund officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized
by law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their
1
<PAGE> 2
normal duties for the FUND which consist of maintenance of the accounts, books
and other documents which constitute the record forming the basis for the
FUND's financial statements, preparation of such financial statements and other
FUND documents and reports of a financial nature required by federal and state
laws, and participation in the production of the FUND's registration statement,
prospectuses, proxy solicitation materials and reports to shareholders; (v)
fees of outside counsel to and of independent accountants of the FUND selected
by the Trustees; (vi) custodian, registrar and shareholder service agent fees
and expenses; (vii) expenses related to the repurchase or redemption of its
shares including expenses related to a program of periodic repurchases or
redemptions; (viii) expenses related to the issuance of its shares against
payment therefor by or on behalf of the subscribers thereto; (ix) fees and
related expenses of registering and qualifying the FUND and its shares for
distribution under state and federal securities laws; (x) expenses of printing
and mailing of registration statements, prospectuses, reports, notices and
proxy solicitation materials of the FUND; (xi) all other expenses incidental to
holding meetings of the FUND's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the FUND's membership in trade associations approved by the Trustees; and
(xv) such nonrecurring expenses as may arise, including those associated with
actions, suits or proceedings to which the FUND is a party and the legal
obligation which the FUND may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are
allocated between the FUND and any other party, such allocations shall be
pursuant to methods approved by the Trustees.
For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the FUND agree that the retention of (i) the chief executive
officer, president, chief financial officer and secretary of the ADVISER and
(ii) each director, officer and employee of the ADVISER or any of its
Affiliates (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) who serves as an officer of the FUND (each person referred to in
(i) or (ii) hereinafter being referred to as an "Essential Person"), in his or
her current capacities, is in the best interest of the FUND and the FUND's
shareholders. In connection with the ADVISER's acceptance of employment
hereunder, the ADVISER hereby agrees and covenants for itself and on behalf of
its Affiliates that neither the ADVISER nor any of its Affiliates shall make
any material or significant personnel changes or replace or seek to replace any
Essential Person or cause to be replaced any Essential Person, in each case
without first informing the Board of Trustees of the FUND in a timely manner.
In addition, neither the ADVISER nor any Affiliate of the ADVISER shall change
or seek to change or cause to be changed, in any material respect, the duties
and responsibilities of any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, neither the ADVISER nor any subadviser shall be subject to
liability to the FUND, or to any shareholder of the FUND, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
2
<PAGE> 3
(3) COMPENSATION PAYABLE TO THE ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rate:
.60% of average daily net assets
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such
commissions, fees, brokerage or similar payments. The ADVISER shall use its
best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Trustees of any other commissions, fees, brokerage or similar
payments which may be possible for the ADVISER or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc. to receive in connection with
FUND's portfolio transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the FUND's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
Adviser's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to Van Kampen American Capital Distributors, Inc., the distributor
of the FUND's shares, in connection with a distribution plan adopted by the
FUND's Trustees pursuant to Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the Act.
3
<PAGE> 4
(5) DURATION OF AGREEMENT
This Agreement shall become effective on the date hereof, and shall remain in
full force until May 31, 1999 unless sooner terminated as hereinafter provided.
This Agreement shall continue in force from year to year thereafter, but only
so long as such continuance is approved at least annually by the vote of a
majority of the FUND's Trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval , and by a vote of a majority of the
FUND's Trustees or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person, "
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the FUND
or the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually but are binding only upon the
assets and property of the FUND. A Certificate of Trust in respect of the FUND
is on file with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. U.S. GOVERNMENT TRUST
FOR INCOME
By: /s/ Dennis J. McDonnell By: /s/ Peter W. Hegel
--------------------------- -----------------------------
Name: Dennis J. McDonnell Name: Peter W. Hegel
Its: President Its: Executive Vice President
4
<PAGE> 1
EXHIBIT (6)(a)
DISTRIBUTION AND SERVICE AGREEMENT
THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997(the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL U.S. Government Trust
for Income, a Delaware business trust (the "Fund"), and VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
1. Appointment of Distributor. The Fund appoints the Distributor as a
principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund, subject to different combinations
of front-end sales charges, distribution fees, service fees and contingent
deferred sales charges. Classes of shares, if any, subject to a front-end
sales charge and a distribution and/or service fee are referred to herein as
"FESC Classes" and the Shares of such classes are referred to herein as "FESC
Shares." Classes of shares, if any, subject to a contingent-deferred sales
charge and a distribution and/or a service fee are referred to herein as "CDSC
Classes" and Shares of such classes are referred to herein as "CDSC Shares."
Classes of shares, if any, subject to a front-end sales charge, a
contingent-deferred sales charge and a distribution and/or service fee are
referred to herein as "Combination Classes" and Shares of such class are
referred to herein as "Combination Shares." The Fund reserves the right to
refuse at any time or times to sell Shares hereunder for any reason deemed
adequate by the Board of Trustees of the Fund.
The Distributor will use its best efforts to sell, through its
organization and through other dealers and agents, the Shares which the
Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares.
The Distributor agrees that it will not take any long or short
positions in the Shares, except for long positions in those Shares purchased by
the Distributor in accordance with any systematic sales plan described in the
then current Prospectus of the Fund and except as permitted by Section 2
hereof, and that so far as it can control the situation, it will prevent any of
its trustees, officers or shareholders from taking any long or short positions
in the Shares, except for legitimate investment purposes.
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth. Such
exclusive right hereby granted shall not apply to Shares issued or transferred
or sold at net asset value: (a) in connection with the merger or consolidation
of the Fund with any other investment company or the acquisition by the Fund of
all or substantially all of the assets of or the outstanding Shares of any
investment company; (b) in connection with a pro rata distribution directly to
the holders of Fund Shares in the nature of a stock dividend or stock split or
in connection with any other recapitalization approved by the Board of
Trustees; (c) upon the exercise of purchase or subscription rights granted to
the holders of Shares on a pro rata basis; (d) in connection with the automatic
reinvestment of dividends and distributions from the Fund; or (e) in connection
with the issue and sale of Shares to trustees, officers and employees of the
Fund; to directors, officers and employees of the investment adviser of the
Fund or any principal underwriter (including the Distributor) of the Fund; to
retirees of the Distributor that purchased shares of any mutual fund
distributed by the Distributor prior to retirement; to directors, officers and
employees of Van Kampen American Capital, Inc. (formerly The Van Kampen Merritt
Companies, Inc.) (the parent of the Distributor), VK/AC Holding, Inc. (formerly
VKM Holdings, Inc.)(the parent of The Van Kampen Merritt Companies, Inc.) and
to the subsidiaries of VK/AC Holding, Inc.; and to any trust, pension,
profit-sharing or other benefit plan for any of the aforesaid persons as
permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940
Act").
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission
1
<PAGE> 2
and cancellation of orders) to fill unconditional orders for Shares received by
the Distributor from dealers, agents and investors during each period when
particular net asset values and public offering prices are in effect as
provided in Section 3 hereof; and the price which the Distributor shall pay for
the Shares so purchased shall be the respective net asset value used in
determining the public offering price on which such orders were based. The
Distributor shall notify the Fund at the end of each such period, or as soon
thereafter on that business day as the orders received in such period have been
compiled, of the number of Shares of each class that the Distributor elects to
purchase hereunder.
3. Public Offering Price. The public offering price per Share shall
be determined in accordance with the then current Prospectus of the Fund. In
no event shall the public offering price exceed the net asset value per Share,
plus, with respect to the FESC Shares, a front-end sales charge not in excess
of the applicable maximum sales charge permitted under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., as in effect
from time to time. The net asset value per share for each class of Shares,
respectively, shall be determined in the manner provided in the Declaration of
Trust and By-Laws of the Trust as then amended, the Certificate of Designation
with respect to the Fund, as amended, and in accordance with the then current
Prospectus of the Fund consistent with the terms and conditions of the
exemptive order with respect to the Fund (Release No. IC-19600) issued by the
Securities and Exchange Commission on July 28, 1993, as it may be amended from
time to time or succeeded by other exemptive orders or rules promulgated by the
Securities and Exchange Commission under the 1940 Act. The Fund will cause
immediate notice to be given to the Distributor of each change in net asset
value as soon as it is determined. Discounts to dealers purchasing FESC Shares
from the Distributor for resale and to brokers and other eligible agents making
sales of FESC Shares to investors and compensation payable from the Distributor
to dealers, brokers and other eligible agents making sales of CDSC Shares and
Combination Shares shall be set forth in the selling agreements between the
Distributor and such dealers or agents, respectively, as from time to time
amended, and, if such discounts and compensation are described in the then
current Prospectus for the Fund, shall be as so set forth.
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund
Shares, the Distributor will in all respects duly comply with all state and
federal laws relating to the sale of such securities and with all applicable
rules and regulations of all regulatory bodies, including without limitation
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and all applicable rules and regulations of the Securities and Exchange
Commission under the 1940 Act, and will indemnify and save the Fund harmless
from any damage or expense on account of any unlawful act by the Distributor or
its agents or employees. The Distributor is not, however, to be responsible
for the acts of other dealers or agents, except to the extent that they shall
be acting for the Distributor or under its direction or authority. None of the
Distributor, any dealer, any agent or any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus heretofore or hereafter
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "1933 Act") (as any such Registration Statement and
Prospectus may have been or may be amended from time to time), covering the
Shares, and in any supplemental information to any such Prospectus approved by
the Fund in connection with the offer or sale of Shares. None of the
Distributor, any dealer, any broker or any other person is authorized to act as
agent for the Fund in connection with the offering or sale of Shares to the
public or otherwise. All such sales shall be made by the Distributor as
principal for its own account.
In selling Shares to investors, the Distributor will adopt and comply
with certain standards, as set forth in Exhibit III attached hereto as to when
each respective class of Shares may appropriately be sold to particular
investors. The Distributor will require every broker, dealer and other
eligible agent participating in the offering of the Shares to agree to adopt
and comply with such standards as a condition precedent to their participation
in the offering.
2
<PAGE> 3
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund
will exercise its best efforts to obtain said
registration and qualification;
(ii) all expenses in connection with the printing of any
notices of shareholders' meetings, proxy and proxy
statements and enclosures therewith, as well as any
other notice or communication sent to shareholders in
connection with any meeting of the shareholders or
otherwise, any annual, semiannual or other reports or
communications sent to the shareholders, and the
expenses of sending prospectuses relating to the Shares
to existing shareholders;
(iii) all expenses of any federal or state original-issue tax
or transfer tax payable upon the issuance, transfer or
delivery of Shares from the Fund to the Distributor;
and
(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.
(b) The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.
(c) The Fund shall reimburse the Distributor for out-of-pocket
costs and expenses actually incurred by it in connection with distribution of
each class of Shares respectively in accordance with the terms of a plan (the
"12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act as
such 12b-1 Plan may be in effect from time to time; provided, however, that no
payments shall be due or paid to the Distributor hereunder with respect to a
class of Shares unless and until this Agreement shall have been approved for
each such class by a majority of the Board of Trustees of the Fund and by a
majority of the "Disinterested Trustees" (as such term is defined in such 12b-1
Plan) by vote cast in person at a meeting called for the purpose of voting on
this Agreement. A copy of such 12b-1 Plan as in effect on the date of this
Agreement is attached as Exhibit I hereto. The Fund reserves the right to
terminate such 12b-1 Plan with respect to a class of Shares at any time, as
specified in the Plan. The persons authorized to direct the payment of funds
pursuant to this Agreement and the 12b-1 Plan shall provide to the Fund's Board
of Trustees, and the Trustees shall review, at least quarterly, a written
report with respect to each of the classes of Shares of the amounts so paid and
the purposes for which such expenditures were made for each such class of
Shares.
(d) The Fund shall compensate the Distributor for providing
services to, and the maintenance of, shareholder accounts in the Fund
(including prepaying service fees to eligible brokers, dealers and financial
intermediaries and expenses incurred in connection therewith) and the
Distributor may pay as agent for and on behalf of the Fund a service fee with
respect to each class of Shares to brokers, dealers and financial
intermediaries for the provision of shareholder services and the maintenance of
shareholder accounts in the Fund in the amount with respect to each class of
Shares set forth from time to time in the Fund's prospectus. The Fund shall
compensate the Distributor for such expenses in accordance with the terms of a
service plan (the "Service Plan"), as such Service Plan may be in effect from
time to time; provided, however, that no service fee payments shall be due or
paid to the Distributor hereunder with respect to a class of Shares unless and
until this Agreement shall have been approved for each such class by a majority
of the Board of Trustees of the Fund and by a majority of the Disinterested
Trustees by vote cast in person at a meeting called for the purpose of voting
on this Agreement. A copy of such Service Plan as in effect on the date of
this Agreement is attached as Exhibit II hereto. The Fund reserves the right
to terminate such Service Plan with respect to a class of Shares at any time,
as specified in the Plan. The persons authorized to direct the payment of
funds pursuant to this Agreement and the Service Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall
3
<PAGE> 4
review, at least quarterly, a written report with respect to each of the
classes of Shares of the amounts paid as service fees for each such class of
Shares.
6. Redemption of Shares. In connection with the Fund's redemption of
its Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal
and state legislation, any applicable rules of the National Association of
Securities Dealers, Inc., and any applicable rules and regulations of the
Securities and Exchange Commission under the 1940 Act, the Distributor may
accept offers of holders of Shares to resell such Shares to the Fund on such
terms and conditions and at such prices as described and provided for in the
then current Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as
the Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such repurchases,
and the Fund shall notify the Distributor of the prices and, in the case of a
class of CDSC Shares or Combination Shares, of the deferred sales charge as
described below, if any, applicable to repurchases of Shares of such class.
(c) The Fund shall have the right to suspend or revoke the
foregoing authorization at any time; unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by telegraph or by written instrument from any of the Fund's officers.
In the event that the Distributor's authorization is, by the terms of such
notice, suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote of
the Board of Trustees of the Fund.
(d) The Distributor agrees that all repurchases of Shares made
by the Distributor shall be made only as agent for the Fund's account and
pursuant to the terms and conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to
pay, for the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so repurchased for the Fund
against the authorized transfer of book shares from an open account and against
delivery of any other documentation required by the Board of Trustees of the
Fund or, in the case of certificated Shares, against delivery of the
certificates representing such Shares in proper form for transfer to the Fund.
(f) The Distributor shall receive no commissions or other
compensation in respect of any repurchases of FESC Shares for the Fund under
the foregoing authorization and appointment as agent. With respect to any
repurchase of CDSC Shares or Combination Shares, the Distributor shall receive
the deferred sales charge, if any, applicable to the respective class of Shares
that have been held for less than a specified period of time with respect to
such class as set forth from time to time in the Fund's Prospectus. The
Distributor shall receive no other commission or other compensation in respect
of any repurchases of CDSC Shares or Combination Shares for the Fund under the
foregoing authorization and appointment as agent.
(g) If any FESC Shares sold to the Distributor under the terms
of this Agreement are redeemed or repurchased by the Fund or by the Distributor
as agent or are tendered for redemption within seven business days after the
date of the Distributor's confirmation of the original purchase by the
Distributor, the Distributor shall forfeit the amount above the net asset value
received by it in respect of such Shares, provided that the portion, if any, of
such amount re-allowed by the Distributor to dealers or agents shall be
repayable to the Fund only to the extent recovered by the Distributor from the
dealer or agent concerned. The Distributor shall include in agreements with
such dealers and agents a corresponding provision for the forfeiture by them of
their concession with respect to FESC Shares
4
<PAGE> 5
purchased by them or their principals and redeemed or repurchased by the
Fund or by the Distributor as agent within seven business days after the date
of the Distributor's confirmation of such initial purchases.
7. Indemnification. The Fund agrees to indemnify and hold harmless
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, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
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 Fund (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
therein, in light of the circumstances under which they were made, not
misleading under the 1933 Act or any other statute or the common law. However,
the Fund 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 Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Fund 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 securityholders 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 this
Agreement, or (ii) is the Fund to be liable under its indemnity agreement
contained in this Section with respect to any claim made against the
Distributor or any person indemnified unless the Distributor or any such person
shall have notified the Fund in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Distributor or any such
person (or after the Distributor or the person shall have received notice of
service on any designated agent). However, failure to notify the Fund of any
claim shall not relieve the Fund from any liability which it may have to the
Distributor or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund shall
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense, of any suit brought to enforce any claims, but
if the Fund elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any suit and retain counsel, the Distributor, officers or
trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them.
If the Fund does not elect to assume the defense of any suit, it will reimburse
the Distributor, officers or trustees or controlling person or persons,
defendant or defendants in the suit for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees to notify the Distributor promptly
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of the
Shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Fund and each of its trustees and officers and each person,
if any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim
or expense and reasonable counsel fees incurred in connection therewith)
arising by reason of any person acquiring any Shares, based upon the 1933 Act
or any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (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 therein, in light of the
circumstances under which they were made, not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund by or on behalf of the Distributor. In no
case (i) is the indemnity of the Distributor in favor of the Fund or any person
indemnified to be deemed to protect the Fund or any such person against any
liability to which the Fund 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 obligation and duties
under this Amended Agreement, or (ii) is the Distributor to be liable under its
5
<PAGE> 6
indemnity agreement contained in this paragraph with respect to any claim made
against the Fund or any person indemnified unless the Fund or person, as the
case may be, shall have notified the Distributor in writing of the claim within
a reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the Fund or
person (or after the Fund or such person shall have received notice of service
on any designated agent). However, failure to notify the Distributor of any
claim shall not relieve the Distributor from any liability which it may have to
the Fund or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. In the case of
any notice to the Distributor, it shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce the claim, but if the Distributor elects to assume the
defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and trustees and to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any suit and retain counsel, the
Fund or controlling persons, defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does
not elect to assume the defense of any suit, it will reimburse the Fund,
officers and trustees or controlling person or persons, defendant or defendants
in the suit, for the reasonable fees and expenses of any counsel retained by
them. The Distributor agrees to notify the Fund promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Shares.
8. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the
Fund, on written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement
may be terminated by the Distributor on ninety (90) days' written notice to the
Fund. Upon termination of this Agreement with respect to either class of
Shares of the Fund, the obligations of the parties hereunder shall cease and
terminate with respect to such class of Shares as of the date of such
termination, except for any obligation to respond for a breach of this
Agreement committed prior to such termination.
This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.
9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. Notice. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the other party at any
office of such party or at such other address as such party shall have
designated in writing.
6
<PAGE> 7
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
By: /s/ Dennis J. McDonnell
------------------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: /s/ Ronald A. Nyberg
------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
7
<PAGE> 1
EXHIBIT (8)(a)
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES LISTED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Moneys . . . . . . . . . . . . . . . . . . 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . 10
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . 10
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.15 Communications Relating to Fund Securities . . . . . . . . 11
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . 11
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . 12
3.4 Agreements with Foreign Banking Institutions . . . . . . . 12
3.5 Access of Independent Accountants of the Fund . . . . . . 12
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . 12
3.7 Transactions in Foreign Custody Account . . . . . . . . . 13
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . 13
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . 13
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . 14
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . 14
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . 15
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . 16
6. Actions Permitted Without Express Authority . . . . . . . . . . . 16
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . 17
8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . 18
11. Reports to Fund by Independent Public Accountants . . . . . . . . 18
12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . 18
13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . 18
14. Effective Period, Termination and Amendment . . . . . . . . . . . 19
15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . 20
16. Interpretive and Additional Provisions . . . . . . . . . . . . . . 21
17. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . 22
19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. Shareholder Communications . . . . . . . . . . . . . . . . . . . . 22
21. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between each fund or series of a fund listed on
Appendix A which evidences its agreement to be bound hereby by executing a copy
of this Contract (each such fund is individually hereafter referred to as
the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to the
provisions of the Fund's governing documents. The Fund agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, beneficial
interest or partnership interest, as applicable, of the Fund, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Fund(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
1
<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund all non-cash property to be held by it in
the United States including all domestic securities owned by such Fund
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury
(and certain federal agencies collectively referred to herein as
"Securities System") and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Fund held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee
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<PAGE> 6
name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
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<PAGE> 7
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption;
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board of Trustees,
specifying the securities of the Fund to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
securities shall be made; and
16) Upon termination of the Contract.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to
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<PAGE> 8
Article 1. All securities accepted by the Custodian on behalf of the
Fund under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the Custodian
to maintain securities in "street name", the Custodian shall utilize
its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund ,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for a
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Fund be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund, make federal funds available to such Fund
as of specified times agreed upon from time to time by the Fund and
the Custodian in the amount of checks received in payment for Shares
of such Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when
5
<PAGE> 9
due on securities held hereunder. Income due each Fund on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Fund in the
following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund or (e) for transfer to
a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined
in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
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<PAGE> 10
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified copy
of a resolution of the Board of Trustees, specifying the amount
of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment
is to be made; and
8) Upon termination of this Contract.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
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<PAGE> 11
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S.
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon (i)
receipt of advice from the U.S. Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;
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<PAGE> 12
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the U.S. Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Fund in
the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund ;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
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<PAGE> 13
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for the account of
the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each such Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund , the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund , a certified copy of a
resolution of the Board of Trustees setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Fund held by it
and in connection with transfers of securities.
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<PAGE> 14
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Fund shall notify the Custodian at
least three business days prior to the date on which the Custodian is
to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in
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<PAGE> 15
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in a clearing agency which acts as a securities depository
or in a book-entry system for the central handling of securities
located outside of the United States (each a "Foreign Securities
System") only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof
(Foreign Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold cash, securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (1) the records of the Custodian with respect to cash,
securities and other non-cash property of the Fund which are
maintained in such account shall identify by book-entry the cash,
securities and other non-cash property belonging to the Fund and (ii)
the Custodian shall require that cash, securities and other non-cash
property so held by the foreign sub-custodian be held separately from
any assets of the Custodian, the foreign sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of
each Fund will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Fund will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Fund; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund(s) held by the foreign
sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund(s) securities and other assets
and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking
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<PAGE> 16
institution for the Custodian on behalf of each applicable Fund
indicating, as to securities acquired for a Fund, the identity of the
entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians. (b) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for securities
received for the account of each applicable Fund and delivery of
securities maintained for the account of each applicable Fund may be
effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. In addition, and
whether or not such practice is a customary established trading
practice in the relevany jurisdictions, the Custodian will, upon
Proper Instructions from the Fund, deliver cash to securities brokers
in foreign jurisdictions who will effect securities trades for the
Fund and cause the securities purchased to be delivered to the
applicable foreign sub-custodian at some later date. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained
in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this
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<PAGE> 17
paragraph 3.10, in delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any responsibility to the
Fund for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Fund's assets to the extent necessary to obtain
reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Fund's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of
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<PAGE> 18
said Act. The appointment of any such branch as a sub-custodian shall
be governed by paragraph 1 of this Contract. (b) Cash held for each
Fund in the United Kingdom shall be maintained in an interest bearing
account established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Fund and the Transfer Agent of
any receipt by it of payments for Shares of such Fund.
From such funds as may be available for the purpose but subject to the
limitations of the applicable Fund's governing documents and any applicable
votes of the Board of Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares of a Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
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<PAGE> 19
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Funds' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund ;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees of the Fund.
16
<PAGE> 20
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the governing documents of
the Fund as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Fund and/or compute the net asset value per share
of the outstanding shares of each Fund or, if the Custodian and the Fund
execute the applicable Price Source Authorization (the "Authorization"), the
Custodian shall keep such books of account and/or compute such net asset value
per share pursuant to the terms of the Authorization and the attachments
thereto. If so directed, the Custodian shall also calculate daily the net
income of the Fund as described in the Fund's currently effective Prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Fund shall be made at the time or times
described from time to time in the Fund's currently effective Prospectus
related to such Fund.
9. Records
The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to
17
<PAGE> 21
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in
18
<PAGE> 22
good faith without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by: (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
its investment adviser in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30)
19
<PAGE> 23
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Fund has approved the initial use of a
particular Securities System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of the
Fund has reviewed any subsequent change regarding the use by such Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Fund act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of the Direct Paper System by such Fund and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of the Fund has reviewed the use by such Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Fund's governing documents, and further provided, that the Fund
on behalf of one or more of the Funds may at any time by action of its Board (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for a Fund shall be appointed by the Board
of Trustees of such Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities, Funds and other properties of each
applicable Fund then held by it hereunder and shall transfer to an account of
the successor custodian all of the securities of each Fund held in a Securities
System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such
20
<PAGE> 24
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Fund and all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf of each applicable
Fund and to transfer to an account of such successor custodian all of the
securities of each such Fund held in any Securities System. Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the governing documents of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
17. Additional Funds
In the event that Van Kampen American Capital Distributors , Inc.
establishes any funds in addition to the Funds listed on Appendix A with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request. All references herein to
the "Fund" are to each of the Funds listed on Appendix A individually, as if
21
<PAGE> 25
this Contract were between each such individual Fund and the Custodian. With
respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Funds and the Custodian relating to the custody of
the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
21. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consent or object by checking one of the
alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions of each Fund listed on
Exhibit A.
NO [X] The Custodian is not authorized to release the Fund's
name, address, and share positions of each Fund listed
on Exhibit A.
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<PAGE> 26
22. Limitation of Liability.
The execution of this Contract has been authorized by each Fund's
Board of Trustees. This Contract is executed on behalf of each Fund or the
trustees of such Fund as trustees and not individually and the obligations of
the Fund under this Contract are not binding upon any of the Fund's trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 1st day of August, 1997.
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ Nicholas Dalmaso By: /s/ Ronald A. Nyberg
- ------------------------ -----------------------------------
Ronald A. Nyberg, Vice President
and Secretary
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Francine Hayes By: [ILLEGIBLE]
- ------------------------ -----------------------------------
Executive Vice President
23
<PAGE> 27
APPENDIX A
FUND NAMES
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
Van Kampen American Capital High Yield Municipal Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
Van Kampen American Capital U.S. Government Fund
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal
Income Fund
Van Kampen American Capital Florida Insured Tax Free
Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
VAN KAMPEN AMERICAN CAPITAL TRUST
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
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<PAGE> 28
THE EXPLORER INSTITUTIONAL TRUST
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
VAN KAMPEN AMERICAN CAPITAL NAVIGATOR FUNDS
Emerging Markets Equity Portfolio
Emerging Markets Fixed Income Portfolio
U.S. QUALITY FUNDS
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR PENNSYLVANIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL BOND FUND
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST
25
<PAGE> 1
EXHIBIT (8)(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of May, 1997 by and between each of the
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto,
which are organized under the laws of the state and as the entities set forth
in Schedule "A" hereto (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation ("ACCESS").
R E C I T A L:
-------------
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment; Duties of ACCESS.
---------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement, each
of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence
in accordance with reasonable industry practice, and that the necessary
facilities, equipment and personnel for such performance will be provided.
1.04 For a period of one year commencing on the effective date of this
Agreement, ACCESS and each of the Funds agree that the retention of (i) the
chief executive officer, president, chief financial officer, chief operating
officer and secretary of ACCESS and (ii) each director, officer and employee of
ACCESS or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Funds (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest
<PAGE> 2
of the Funds and the Funds' shareholders. In connection with ACCESS's
acceptance of employment hereunder, ACCESS hereby agrees and covenants for
itself and on behalf of its Affiliates that neither ACCESS nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Funds
in a timely manner. In addition, neither ACCESS nor any Affiliate of ACCESS
shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Funds in a timely
manner.
1.05 In order to assure compliance with section 1.03 and to implement a
cooperative effort to improve and maintain the quality of transfer agency,
dividend disbursing and shareholder services received by each of the Funds and
their shareholders, ACCESS agrees to provide and maintain quantitative
performance objectives, including maximum target turn-around times and maximum
target error rates, for the various services provided hereunder. ACCESS also
agrees to provide a reporting system designed to provide the Board of Trustees
of each of the Funds (the "Board") on a quarterly basis with quantitative data
comparing actual performance for the period with the performance objectives.
The foregoing procedures are designed to provide a basis for continuing
monitoring by the Board of the quality of services rendered hereunder.
Article 2. Fees and Expenses.
------------------
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each of the
Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings
Page 2
<PAGE> 3
to all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
Article 3. Representations and Warranties of Access.
-----------------------------------------
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in each jurisdiction in
which the nature of its business requires it to be so qualified.
3.03 It is empowered under applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform its
duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as follows:
(a) Each "as of" transaction effected at a price other than that in
effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error,
or delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon any Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of such Fund, ACCESS shall promptly make a payment to such Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of such Fund. If on the last business day
of the month the cumulative net effect (adjusted by the amount of any
payments or credits used pursuant to the preceding sentence) upon any
Fund is negative, such Fund shall be entitled to a reduction in the
monthly transfer agency fee next payable by an equivalent amount, except
as provided in paragraph (c) below. If on the last
Page 3
<PAGE> 4
business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain
past payments, credits used and reductions in fees, and to a credit
against all future payments and fee reductions made under this paragraph
to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first
be applied to recover any payments, credits used and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar year
by increasing the amount of the monthly transfer agency fee next payable
in an amount equal to prior payments, credits used and fee reductions
made during such year, but not exceeding the sum of that month's credit
and credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects which would otherwise require a payment,
use of a credit or fee reduction to such Fund pursuant to paragraph (b)
above.
Article 4. Representations and Warranties of the Funds.
--------------------------------------------
Each of the Funds hereby represents and warrants on behalf of itself
only and not on behalf of any other Funds which are a party to this Agreement
that:
4.01 It is duly organized and existing and in good standing under the laws
of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to authorize
it to enter into and perform this Agreement.
4.04 It is an open-end, management investment company registered under the
Investment Company Act of 1940, as amended.
Page 4
<PAGE> 5
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
Article 5. Indemnification.
---------------
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities (collectively, "Losses") arising out of or attributable to:
(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided that ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS
by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying out by
ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless
such violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares
be made in general or to the residents of a particular state.
(e) Such Fund's refusal or failure to comply with the terms of this
Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder. Notwithstanding the foregoing, no Fund shall be required to
indemnify or hold ACCESS harmless from and against any Losses arising out
of or attributable to any action or failure to take action, or any
information, records or
Page 5
<PAGE> 6
documents prepared or maintained, on behalf of
the Fund by the Fund's investment adviser or distributor, or any person
providing fund accounting or legal services to the Fund that is also an
officer or employee of Van Kampen American Capital, Inc. or its
subsidiaries unless such person or entity is otherwise entitled to
indemnification from the Fund.
5.02 ACCESS shall indemnify and hold harmless each of the Funds from and
against any and all Losses arising out of or attributable to ACCESS' refusal or
failure to comply with the terms of this Agreement, or ACCESS' lack of good
faith, or its negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any of the
Funds for instructions, and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement,
and ACCESS shall not be liable and shall be indemnified by such concerned Fund
for any action taken or omitted by it in good faith in reasonable reliance upon
such instructions or upon the opinion of such counsel. ACCESS shall be
protected and indemnified in acting upon any paper or document reasonably
believed by ACCESS to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the concerned Fund.
ACCESS shall also be protected and indemnified in recognizing stock
certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event that any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim.
Page 6
<PAGE> 7
The party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6. Covenants of Each of the Funds and ACCESS.
------------------------------------------
6.01 Each of the Funds shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of its Board authorizing the
appointment of ACCESS and the execution and delivery of this Agreement.
(b) Certified copies of its Declaration of Trust or Articles of
Incorporation and by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
Page 7
<PAGE> 8
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned
Funds and to secure instructions from an authorized officer of each of the
concerned Funds as to such inspection. ACCESS reserves the right, however, to
exhibit such Fund Records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit such Fund records to such
person.
Article 7. Term and Termination Of Agreement.
----------------------------------
7.01 The initial term of this Agreement shall expire May 31, 1999,
and thereafter this Agreement shall automatically be renewed for
successive one year periods to begin on June 1 of each year unless any party
provides notice to the other party at least 120 days in advance of that date
that this Agreement is not to be renewed.
7.02 Notwithstanding the foregoing, any party may terminate this
Agreement for good and reasonable cause at any time by giving written
notice to the other party at least 60 days prior to the date on which such
termination is to be effective or such shorter period as may be required by
law.
7.03 Any unpaid fees or reimbursable expenses payable to ACCESS at
the termination date of this Agreement shall be due on that termination date.
ACCESS agrees to use its best efforts to cooperate with the Funds and the
successor transfer, dividend disbursement, or shareholder servicing agent
or agents in accomplishing an orderly transition.
Article 8. Miscellaneous.
--------------
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of
any of the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
Page 8
<PAGE> 9
8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of
the Funds for the acts and omissions of DST, Inc. or other qualified
servicer as it is for its own acts and omissions.
8.04 Without the prior approval of the Boards of Trustees of the
Funds, ACCESS shall not, directly or indirectly, provide services,
including services such as transfer agent, dividend disbursing agent or
shareholder service agent, to any investment companies.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
any prior agreement with respect thereto, whether oral or written, and
this Agreement may not be modified except by written instrument executed
by the affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the
Trustees of the Funds as Trustees and not individually and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Funds individually but are binding only
upon the assets and property of the Funds. A Certificate of Trust in
respect of each of the Funds is on file with the appropriate state
agency.
8.07 For each of those Funds which have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under
this Agreement shall apply only on a portfolio-by-portfolio basis and the
assets of one portfolio shall not be liable for the obligations of any
other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties
hereto agree to renegotiate such affected portions in good faith.
8.09 All questions concerning the validity, meaning and effect of
this Agreement shall be determined in accordance with the laws (without
giving effect to the conflict-of-law principles thereof) of the State of
Delaware applicable to contracts made and to be performed in that state.
8.10 (a) Any dispute, controversy, or claim arising out of or
relating to this Agreement, or the breach, termination or validity
thereof, shall be finally settled by arbitration in accordance with
the Expedited Procedures
Page 9
<PAGE> 10
of the commercial arbitration Rules of the American Arbitration
Association (the "AAA") then in effect (the "Rules"). The
arbitration shall be held in Chicago, Illinois.
(b) There shall be one arbitrator who shall be selected jointly by
the parties. If the parties are unable to agree on an arbitrator
within 15 days after a demand for arbitration is made by a party,
the arbitrator shall be appointed by the AAA in accordance with the
Rules. The hearing shall be held within 90 days of the appointment
of the arbitrator. Notwithstanding the Expedited Procedures
of the Rules, the arbitrator, at his discretion, may schedule
additional days of hearings.
(c) Either party may, without inconsistency with this Agreement,
seek from a court any interim or provisional relief in aid of
arbitration, pending the establishment of the arbitral tribunal.
The parties hereby submit to the exclusive jurisdiction of the
federal and state courts located in the northern district of the
state of Illinois for any such relief in aid of arbitration, or for
any relief relating to arbitration, except for the enforcement of an
arbitral award which may be enforced in any court having
jurisdiction.
(d) Any arbitration proceedings or award rendered hereunder and the
validity, effect and interpretation of Section 8.10 shall be
governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et
--
seq.) The award shall be final and binding upon the parties.
---
Judgment upon any award may be entered in any court having
jurisdiction.
(e) This Agreement and the rights and obligations of the Parties
shall remain in full force and effect pending the award in any
arbitration proceeding hereunder.
Page 10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN CAPITAL
OPEN END FUNDS LISTED ON SCHEDULE
"A" HERETO
BY: /s/ Ronald A. Nyberg
----------------------------------
Vice President
ATTEST:
/s/ Nicholas Dalmaso
- ----------------------------------
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ Paul R. Wolkenberg
---------------------------------
President and Chief Executive Officer
ATTEST:
/s/ Huey P. Falgout
- ---------------------------------
Assistant Secretary
Page 11
<PAGE> 12
SCHEDULE "A"
------------
VAN KAMPEN AMERICAN CAPITAL OPEN-END FUNDS
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Aggressive Growth Fund DE T
Van Kampen American Capital California Insured Tax Free Fund DE T
Van Kampen American Capital Comstock Fund DE T
Van Kampen American Capital Corporate Bond Fund DE T
Van Kampen American Capital Emerging Growth Fund DE T
Van Kampen American Capital Enterprise Fund DE T
Van Kampen American Capital Equity Income Fund DE T
Van Kampen American Capital Florida Insured Tax Free Income Fund DE T
Van Kampen American Capital Foreign Securities Fund DE T
Van Kampen American Capital Global Managed Assets Fund DE T
Van Kampen American Capital Government Securities Fund DE T
Van Kampen American Capital Government Target Fund DE T
Van Kampen American Capital Great American Companies Fund DE T
Van Kampen American Capital Growth Fund DE T
Van Kampen American Capital Growth and Income Fund DE T
Van Kampen American Capital Harbor Fund DE T
Van Kampen American Capital High Income Corporate Bond Fund DE T
Van Kampen American Capital High Yield Fund DE T
Van Kampen American Capital Insured Tax Free Income Fund DE T
Van Kampen American Capital Intermediate Term Municipal Income Fund DE T
</TABLE>
Page 12
<PAGE> 13
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Life Investment Trust DE T
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen American Capital Limited Maturity Government Fund DE T
Van Kampen American Capital Municipal Income Fund DE T
Van Kampen American Capital New Jersey Tax Free Income Fund DE T
Van Kampen American Capital New York Tax Free Income Fund DE T
Van Kampen American Capital Pace Fund DE T
Van Kampen American Capital Pennsylvania Tax Free Income Fund PA T
Van Kampen American Capital Prospector Fund DE T
Van Kampen American Capital Real Estate Securities Fund DE T
Van Kampen American Capital Reserve Fund DE T
Van Kampen American Capital Short-Term Global Income Fund DE T
Van Kampen American Capital Small Capitalization Fund DE T
Van Kampen American Capital Strategic Income Fund DE T
Van Kampen American Capital Tax-Exempt Trust DE T
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Tax Free High Income Fund DE T
Van Kampen American Capital Tax Free Money Fund DE T
Van Kampen American Capital U.S. Government Fund DE T
Van Kampen American Capital U.S. Government Trust for Income DE T
Van Kampen American Capital Utility Fund DE T
Van Kampen American Capital Value Fund DE T
</TABLE>
PAGE 13
<PAGE> 14
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital World Portfolio Series Trust DE T
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities
Fund
</TABLE>
PAGE 14
<PAGE> 1
Exhibit (9)(b)
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, dated May 31, 1997, by and between the parties
set forth in Schedule A hereto (designated collectively hereafter as the
"Funds") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").
W I T N E S S E T H:
WHEREAS, each of the Funds is registered as a management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Advisory Corp. has the capability of providing certain
accounting services to the Funds; and
WHEREAS, each desires to utilize Advisory Corp. in the
provision of such accounting services; and
WHEREAS, Advisory Corp. intends to maintain its staff in order
to accommodate the provision of all such services.
NOW THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:
1. Appointment of Advisory Corp. As agent, Advisory Corp. shall provide
-----------------------------
each of the Funds the accounting services ("Accounting Services") as set
forth in Paragraph 2 of this Agreement. Advisory Corp. accepts such
appointment and agrees to furnish the Accounting Services in return for the
compensation provided in Paragraph 3 of this Agreement.
2. Accounting Services to be Provided. Advisory Corp. will provide
----------------------------------
to each respective Fund accounting related services in connection with the
maintenance of the financial records of such Fund, including without
limitation: (i) maintenance of the general ledger and other financial books
and records; (ii) processing of portfolio transactions; (iii) coordination
of the valuation of portfolio securities; (iv) calculation of the Fund's
net asset value; (v) coordination of financial and regulatory reporting;
(vi) preparation of financial reports for each Fund's Board of Trustees;
(vii) coordination of tax and financial compliance issues; (viii) the
establishment and maintenance of accounting policies; (ix) recommendations
with respect to dividend policies; (x) preparation of each Fund's financial
reports and other accounting and tax related notice information to
shareholders; and (xi) the assimilation and interpretation of accounting
data for meaningful management review. Advisory Corp. shall provide
accurate maintenance of each Fund's financial books and records as required
by the applicable securities statutes and regulations, and shall hire
persons (collectively the "Accounting Service Group") as needed to provide
such Accounting Services.
<PAGE> 2
3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision
of the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.
The Accounting Services Expenses will be paid by Advisory Corp.
and reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.
4. Payment for Accounting Service Expenses Among the Funds. As to one
quarter (25%) of the Accounting Service Expenses incurred under the
Agreement, the expense shall be allocated between all Funds based on the
number of classes of shares of beneficial interest that each respective
Fund has issued. As to the remaining three quarters (75%) of the Accounting
Service Expenses incurred under the Agreement, the expense shall be
allocated between all Funds based on their relative net assets. For
purposes of determining the percentage of expenses to be allocated to any
Fund, the liquidation preference of any preferred shares issued by any such
Fund shall not be considered a liability of such Fund for the purposes of
calculating relative net assets of such Fund.
5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will
remain the property of each respective Fund and will be preserved by
Advisory Corp. for the periods prescribed in Section 31 of the 1940 Act and
the rules thereunder or such other applicable rules that may be adopted
from time to time under the act. In the event of termination of the
Agreement, such records will be promptly delivered to the respective Funds.
Such records may be inspected by the respective Funds at reasonable times.
6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any
Fund for any action taken or thing done by it or its agents or contractors
on behalf of the fund in carrying out the terms and provisions of the
Agreement if done in good faith and without gross negligence or misconduct
on the part of Advisory Corp., its agents or contractors.
7. Indemnification By Funds. Each Fund will indemnify and hold Advisory
Corp. harmless from all lost, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Advisory Corp. resulting from: (a) any
claim, demand, action or suit in connection with Advisory Corp.'s acceptance of
this Agreement; (b) any action or omission by Advisory Corp. in the performance
of its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed
by it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions
constituting gross negligence or willful misconduct of Advisory Corp. or its
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, Advisory Corp. shall give the Fund reasonable
opportunity to defend against said claim in its own name or in the name of
Advisory Corp.
8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and
hold harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided
that such negligence or misconduct is not attributable to the Funds, their
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, the Fund shall give Advisory Corp. reasonable
opportunity to defend against said claim in its own name or in the name of such
Fund.
2
<PAGE> 3
9. Further Assurances. Each party agrees to perform such further acts and
-------------------
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Dual Interests. It is understood that some person or persons may be
---------------
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
11. Execution, Amendment and Termination. The term of this Agreement shall
-------------------------------------
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or
amended from time to time by mutual agreement between the parties hereto and
may be terminated after May, 1998, by at least sixty (60) days' written notice
given by one party to the others. Upon termination hereof, each Fund shall pay
to Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement
may be amended in the future to include as additional parties to the Agreement
other investment companies for with Advisory Corp., any subsidiary or affiliate
serves as investment advisor or distributor if such amendment is approved by
the President of each Fund.
12. Assignment. Any interest of Advisory Corp. under this Agreement shall
-----------
not be assigned or transferred, either voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of the Funds.
This Agreement shall automatically and immediately terminate in the event of
its assignment without the prior written consent of the Funds.
13. Notice. Any notice under this Agreement shall be in writing, addressed
-------
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until further notice to the other parties, it is agreed that
for this purpose the address of each Fund is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, Attention: President and that of Advisory Corp. for
this purpose is One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: President.
14. Personal Liability. As provided for in the Agreement and Declaration of
------------------
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and
other agents of the Fund shall not personally be found by or liable for the
matters set forth hereto, nor shall resort be had to their private property for
the satisfaction of any obligation or claim hereunder.
15. Interpretative Provisions. In connection with the operation of this
--------------------------
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.
16. State Law. This Agreement shall be construed and enforced in accordance
----------
with and governed by the laws of the State of Illinois.
17. Captions. The captions in this Agreement are included for convenience
---------
of reference only and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this amended and
restated Agreement to be executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
4
<PAGE> 5
SCHEDULE A
I. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):
CLOSED END FUNDS
- ----------------
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
- -------------------
II. Funds Advised by Van Kampen American Capital Management, Inc.
("Management, Inc.") (Collectively, the "Former Van Kampen Funds"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
5
<PAGE> 6
OPEN END FUNDS
- --------------
III. Funds Advised by Van Kampen American Capital Asset Management, Inc.
("Asset Management, Inc.") (Collectively, the "Former American Capital Funds"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Funds")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf of
its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
6
<PAGE> 7
IV. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of its
series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York
Tax Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund ("Pennsylvania
Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
7
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 9 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 14, 1997, relating to the financial statements and financial
highlights of Van Kampen American Capital U.S. Government Trust for Income,
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/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
January 27, 1998
<PAGE> 1
EXHIBIT (16)
U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS A SHARES
Total Return Calculation One Year Period Ended September 30, 1997
<TABLE>
<S> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,030.06 = ERV
One year period ended 09/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 3.01% = T
Excluding Payment of the Sales Charge
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,080.85 = ERV
One year period ended 09/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 8.09% = T
</TABLE>
Total Return Calculation Inception Through September 30, 1997
<TABLE>
<S> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,230.11 = ERV
Inception through 9/30/97 4.91 = n
TOTAL RETURN FOR THE PERIOD 4.31% = T
Excluding Payment of the Sales Charge
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,291.13 = ERV
Inception through 9/30/97 4.91 = n
TOTAL RETURN FOR THE PERIOD 5.34% = T
</TABLE>
<PAGE> 2
U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS A SHARES
Non-Standardized Cumulative Total Return Calculation
Inception Through September 30, 1997
Formula ERV - P
------- = T
P
<TABLE>
<S> <C>
Including Payment of the Sales Charge
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,230.11 = ERV
TOTAL RETURN FOR THE PERIOD 23.01% = T
Excluding Payment of the Sales Charge
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,291.13 = ERV
TOTAL RETURN FOR THE PERIOD 29.11% = T
</TABLE>
<PAGE> 3
U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS B SHARES
Total Return Calculation One Year Period Ended September 30, 1997
<TABLE>
<S> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,034.33 = ERV
One year period ended 9/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 3.43% = T
Excluding Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,074.33 = ERV
One year period ended 9/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 7.43% = T
</TABLE>
Total Return Calculation Inception Through September 30, 1997
<TABLE>
<S> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,229.81 = ERV
Inception through 9/30/97 4.91 = n
TOTAL RETURN FOR THE PERIOD 4.30% = T
Excluding Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,243.06 = ERV
Inception through 9/30/97 4.91 = n
TOTAL RETURN FOR THE PERIOD 4.53% = T
</TABLE>
<PAGE> 4
U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS B SHARES
Non-Standardized Cumulative Total Return Calculation
Inception Through September 30, 1997
Formula ERV - P
------- = T
P
<TABLE>
<S> <C>
Including Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,229.81 = ERV
TOTAL RETURN FOR THE PERIOD 22.98% = T
Excluding Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,243.06 = ERV
TOTAL RETURN FOR THE PERIOD 24.31% = T
</TABLE>
<PAGE> 5
U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS C SHARES
Total Return Calculation One Year Period Ended September 30, 1997
<TABLE>
<S> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,064.33 = ERV
One year period ended 9/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 6.43% = T
Excluding Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,074.33 = ERV
One year period ended 9/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 7.43% = T
</TABLE>
Total Return Calculation Inception Through September 30, 1997
<TABLE>
<S> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,184.83 = ERV
Inception through 9/30/97 4.47 = n
TOTAL RETURN FOR THE PERIOD 3.87% = T
Excluding Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,184.83 = ERV
Inception through 9/30/97 4.47 = n
TOTAL RETURN FOR THE PERIOD 3.87% = T
</TABLE>
<PAGE> 6
U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS C SHARES
Non-Standardized Cumulative Total Return Calculation
Inception Through September 30, 1997
Formula ERV - P
------- = T
P
<TABLE>
<S> <C>
Including Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,184.83 = ERV
TOTAL RETURN FOR THE PERIOD 18.48% = T
Excluding Payment of the CDSC
Net Asset Value $8.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,184.83 = ERV
TOTAL RETURN FOR THE PERIOD 18.48% = T
</TABLE>
<PAGE> 7
CALCULATION OF YIELD
The Fund calculates its yield quotations based on a 30-day period ended on
the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a - b
YIELD (y) = 2[(------- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Class A
-----------
a = 218,432
b = 39,588
c = 4,678,359
d = 8.60
y = 5.39
Class B Shares
<TABLE>
<S> <C>
Formula
Class A Share Yield + Sales Charge Effect - Expense Differential
Class A Share Yield 5.39%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
4.75% x 5.39% .25%
- Expense Differential between Class A Shares and Class B Shares .75%
-----
Class B Share SEC Yield 4.89%
=====
- Waived Expense Adjustment .00%
-----
Class B Share SEC Yield (Without Expense Waiver) 4.89%
=====
</TABLE>
Class C Shares
<TABLE>
<S> <C>
Formula
Class A Share Yield + Sales Charge Effect - Expense Differential
Class A Share Yield 5.39%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
4.75% x 5.39% .25%
- Expense Differential between Class A Shares and Class C Shares .75%
-----
Class C Share SEC Yield 4.89%
=====
- Waived Expense Adjustment .00%
-----
Class C Share SEC Yield (Without Expense Waiver) 4.89%
=====
</TABLE>
<PAGE> 8
U.S. GOVERNMENT TRUST FOR INCOME FUND
Calculation of Distribution Rate
Period Ended September 30, 1997
Current Annual Income Per Share
-------------------------------
Current Offering Price
<TABLE>
<S> <C> <C>
Class A Shares
$.555
-----
$8.60 = 6.45%
Class B Shares
$.495
-----
$8.19 = 6.04%
Class C Shares
$.495
-----
$8.19 = 6.04%
</TABLE>
<PAGE> 9
U.S. GOVERNMENT FOR INCOME FUND
Calculation of Taxable Equivalent SEC Yield
Formula SEC Yield
---------
1 - Tax Rate
Class A Shares
5.39%
-------
1-40.2% = 9.01%
Class B Shares
4.89%
-------
1-40.2% = 8.18%
Class C Shares
4.89%
-------
1-40.2% = 8.18%
Calculation of Taxable Equivalent Distribution Rate
Formula Distribution Rate
-----------------
1 - Tax Rate
Class A Shares
6.45%
-------
1-40.2% =10.78%
Class B Shares
6.04%
-------
1-40.2% =10.10%
Class C Shares
6.04%
-------
1-40.2% =10.10%
<PAGE> 1
EXHIBIT (17)(a)
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
JANUARY 21, 1998
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
Van Kampen American Capital Foreign Securities Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Asset Allocation Portfolio
Van Kampen American Capital Domestic Income Portfolio
Van Kampen American Capital Emerging Growth Portfolio
Van Kampen American Capital Enterprise Portfolio
Van Kampen American Capital Global Equity Portfolio
Van Kampen American Capital Government Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
<PAGE> 2
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax -Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
Morgan Stanley Aggressive Equity Fund
Morgan Stanley American Value Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley Government Obligations Money Market Fund
Morgan Stanley High Yield Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Latin American Fund
Morgan Stanley Money Market Fund
Morgan Stanley Stable Value Fund (SVFRX)
Morgan Stanley Stable Value Fund II (SVFIX)
Morgan Stanley U.S. Real Estate Fund
Morgan Stanley Value Fund
Morgan Stanley Worldwide High Income Fund
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 396
Insured Municipals Income Trust (Short Intermediate Term) Series 106
Insured Municipals Income Trust (Intermediate Term) Series 89
Insured Municipals Income Trust (Limited Term) Series 86
Arizona Insured Municipals Income Trust Series 18
California Insured Municipals Income Trust Series 171
Colorado Insured Municipals Income Trust Series 85
Connecticut Insured Municipals Income Trust Series 36
Florida Insured Municipals Income Trust Series 119
Georgia Insured Municipals Income Trust Series 86
Indiana Insured Municipals Income Trust Series 1
Kentucky Investors' Quality Tax-Exempt Trust Series 60
Maryland Investors' Quality Tax-Exempt Trust Series 83
Massachusetts Insured Municipals Income Trust Series 35
Michigan Insured Municipals Income Trust Series 148
Minnesota Insured Municipals Income Trust Series 61
Missouri Insured Municipals Income Trust Series 105
New Jersey Insured Municipals Income Trust Series 121
New York Insured Municipals Income Trust Series 144
North Carolina Investors' Quality Tax-Exempt Trust Series 93
Ohio Insured Municipals Income Trust Series 108
Pennsylvania Insured Municipals Income Trust Series 233
South Carolina Investors' Quality Tax-Exempt Trust Series 86
Tennessee Insured Municipals Income Trust Series 40
Virginia Investors' Quality Tax-Exempt Trust Series 79
United States Territorial Insured Municipals Income Trust Series 1
Van Kampen American Capital Insured Income Trust Series 70
Van Kampen American Capital Insured Income Trust (Intermediate Term) Series 68
Internet Trust Series 8
Strategic Ten Trust, United States Portfolio January 1998
Series
Strategic Ten Trust, United Kingdom December 1997
Series
Strategic Ten Trust, Hong Kong December 1997
Series
Strategic Five Trust, United States Portfolio January 1998
Series
Strategic Fifteen Trust Global Portfolio January 1998
Series
Strategic Thirty Trust Global Portfolio January 1998
Series
Great International Firms Trust Series 4
Blue Chip Opportunity and Treasury Trust Series 5
Blue Chip Opportunity Trust Series 3
Baby Boomer Opportunity Trust Series 3
Global Energy Trust Series 4
Brand Name Equity Trust Series 5
Strategic Picks Opportunity Trust January 1998
Series
Principal Financial Securities, Inc. Biotechnology Trust Series 1
International Assets Advisory Corp. Global Passport Series
Infrastructure and Utilities Growth Trust Series 1
Edward Jones Select Growth Trust January 1998
Series
Banking Trust Series 1
Morgan Stanley High-Technology 35 Series 1
Index Trust
</TABLE>
<PAGE> 1
EXHIBIT (17)(b)
Officers
Van Kampen American Capital Distributors, Inc.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman Houston, TX
Philip N. Duff Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmermann, III President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President, General Oakbrook Terrace, IL
Counsel & Assistant Secretary
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Mark T. McGannon Sr. Vice President Oakbrook Terrace, IL
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Michael L. Stallard Sr. Vice President Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Patrick J. Woelfel 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Sheldon Barker Vice President Moon, PA
Patricia A. Bettlach Vice President Chesterfield, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
James J. Boyne Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Brooksley Burke Vice President Marina Del Ray, CA
William F Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Daniel R. Chambers Vice President Austin, TX
Richard J. Charlino Vice President Houston, TX
Deanna 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
Nicholas Dalmaso Vice President & Asst. Secretary Oakbrook Terrace, IL
Ken DiFrancesca Vice President Oakbrook Terrace, IL
Daniel R. DeJong Vice President Oakbrook Terrace, IL
Tracey M. DeLusant Vice President New York, NY
Mark B. Doremus Vice President Houston, TX
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Jonathan Eckard Vice President Tampa, FL
Charles Edward Fisher Vice President Naperville, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Erich P. Gerth Vice President Piedmont, CA
Richard G. Golod Vice President Annapolis, MD
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John A. Hanhauser Vice President Philadelphia, PA
John G. Hansen Vice President Oakbrook Terrace, IL
Eric J. Hargens Vice President Orlando, FL
Calvin B. Hays Vice President Richmond, VA
Joseph Hays Vice President Cherry Hill, NJ
Gregory Heffington Vice President Ft. Collins, CO
Scott F. Heyer Vice President Tampa, FL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
David S. Hogaboom Vice President Oakbrook Terrace, IL
Bryn M. Hoggard Vice President Houston, TX
Robert S. Hunt Vice President Phoenix, MD
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Jeffrey S. Kinney Vice President Overland Park, KS
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
S. William Lehew III Vice President Charlotte, NC
Tony E. Leal Vice President Daphne, AL
Eric Levinson Vice President San Francisco, CA
Jonathan Linstra Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Michael D. Ossmen Vice President Oakbrook Terrace, IL
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Anthony Piazza Vice President Old Bridge, NJ
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Fairlawn, OH
Daniel D. Reams Vice President Royal Oak, MI
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Thomas Rowley Vice President St. Louis, MO
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Andrew J. Scherer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorensen 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
Gary R. Steele Vice President Philadelphia, PA
Richard Stefanec Vice President Los Angeles, CA
James D. Stevens Vice President North Andover, MA
James M. Stilwell Vice President San Diego, CA
William C. Strafford Vice President Granger, IN
David A. Tabone Vice President Scottsdale, AZ
James C. Taylor Vice President Naperville, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Todd Volkman Vice President Austin, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Christopher Walsh Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Kirk Wiggins Vice President Arlington, TX
James R. Yount Vice President Mercer Island, WA
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Walter C. Gray Asst. Vice President Houston, TX
Laurie L. Jones Asst. Vice President Houston, TX
Michael B. Kollins Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Linda S. MacAyaal Asst. Vice President Oakbrook Terrace, IL
Stuart R. Moehlman Asst. Vice President Houston, TX
Steven R. Norvid Asst. Vice President Oakbrook Terrace, IL
Gregory S. Parker Asst. Vice President Houston, TX
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Thomas J. Sauerborn Asst. Vice President New York, NY
Bruce Saxon Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Natalie Wilson Asst. Vice President New York, NY
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Gina M. Costello Asst. Secretary Oakbrook Terrace, IL
Cathy Napoli Asst. Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace. IL
Leticia George Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE> 5
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ------------------- ------------------------ ------------------------------
<S> <C> <C>
Don G. Powell Chairman 2800 Post Oak
Blvd.Houston, TX 77056
Philip N. Duff Chief Executive Officer One Parkview Plaza
Oakbrook Terrace, IL 60181
Jack E. Zimmerman President & Chief One Parkview Plaza
Operating Officer Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President, One Parkview Plaza
General Counsel & Assistant Oakbrook Terrace, IL 60181
Secretary
William R. Rybak Executive Vice President One Parkview Plaza
& Chief Financial Officer Oakbrook Terrace, IL 60181
</TABLE>
<PAGE> 1
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (with the exception of Don G. Powell), as
indicated on Schedule 1 attached hereto and incorporated by reference, each a
Delaware business trust, except for the Van Kampen American Capital
Pennsylvania Tax Free Income Fund, being a Pennsylvania business trust
(individually, a "Trust"), do hereby, in the capacities shown below,
individually appoint Dennis J. McDonnell and Ronald A. Nyberg, each of
Oakbrook Terrace, Illinois, and each of them, as the 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 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: July 24, 1997
Signature Title
--------- -----
/s/ J. Miles Branagan Trustee
- ---------------------------
J. Miles Branagan
/s/ Richard M. DeMartini Trustee
- ---------------------------
Richard M. DeMartini
/s/ Linda Hutton Heagy Trustee
- ---------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee
- ---------------------------
R. Craig Kennedy
/s/ Jack E. Nelson Trustee
- ---------------------------
Jack E. Nelson
/s/ Don G. Powell Trustee (For Former Van
- --------------------------- Kampen Funds only)
Don G. Powell
/s/ Jerome L. Robinson Trustee
- ---------------------------
Jerome L. Robinson
/s/ Phillip B. Rooney Trustee
- ---------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc.D. Trustee
- ---------------------------
Fernando Sisto, Sc.D.
/s/ Wayne W. Whalen Trustee and Chairman
- ---------------------------
Wayne W. Whalen
/s/ Edward C. Wood III Vice President and
- --------------------------- Chief Financial Officer
Edward C. Wood III
/s/ Dennis J. McDonnell President
- ---------------------------
Dennis J. McDonnell
<PAGE> 2
SCHEDULE 1
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust")
on behalf of its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
("Intermediate Term Municipal Income Fund") (f/k/a Limited Term Municipal
Income Fund)
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey Tax
Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax Free
Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax Free
Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax Free
Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free Income
Fund")
Van Kampen American Capital Trust ("VKAC Trust")
on behalf of its series
Van Kampen American Capital High Yield Fund ("VKAC High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term Global
Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 3
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Fund")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Morgan Stanley Real Estate Securities Portfolio ("LIT Morgan Stanley Real
Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
Van Kampen American Capital World Portfolio Series Trust ("World Portfolio
Series Trust") on behalf of its Series
Van Kampen American Capital Global Equity Fund ("Global Equity Fund")
Van Kampen American Capital Global Government Securities Fund ("Global
Government Securities Fund")
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> VKAC U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 173152883<F1>
<INVESTMENTS-AT-VALUE> 172603782<F1>
<RECEIVABLES> 2412960<F1>
<ASSETS-OTHER> 98<F1>
<OTHER-ITEMS-ASSETS> 182830<F1>
<TOTAL-ASSETS> 175199670<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1450360<F1>
<TOTAL-LIABILITIES> 1450360<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 49648102
<SHARES-COMMON-STOCK> 4675547
<SHARES-COMMON-PRIOR> 5576196
<ACCUMULATED-NII-CURRENT> (108311)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (49789266)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (410480)<F1>
<NET-ASSETS> 38305652
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 15210057<F1>
<OTHER-INCOME> 465664<F1>
<EXPENSES-NET> (3417683)<F1>
<NET-INVESTMENT-INCOME> 12258038<F1>
<REALIZED-GAINS-CURRENT> (2095870)<F1>
<APPREC-INCREASE-CURRENT> 3772798<F1>
<NET-CHANGE-FROM-OPS> 13934966<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2842739)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 414895
<NUMBER-OF-SHARES-REDEEMED> (1456979)
<SHARES-REINVESTED> 141435
<NET-CHANGE-IN-ASSETS> (6907663)
<ACCUMULATED-NII-PRIOR> (5046)<F1>
<ACCUMULATED-GAINS-PRIOR> (48065256)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1154038<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3418983<F1>
<AVERAGE-NET-ASSETS> 41678003
<PER-SHARE-NAV-BEGIN> 8.108
<PER-SHARE-NII> 0.567
<PER-SHARE-GAIN-APPREC> 0.073
<PER-SHARE-DIVIDEND> (0.555)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.193
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> VKAC U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 173152883<F1>
<INVESTMENTS-AT-VALUE> 172603782<F1>
<RECEIVABLES> 2412960<F1>
<ASSETS-OTHER> 98<F1>
<OTHER-ITEMS-ASSETS> 182830<F1>
<TOTAL-ASSETS> 175199670<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1450360<F1>
<TOTAL-LIABILITIES> 1450360<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 154776176
<SHARES-COMMON-STOCK> 14869372
<SHARES-COMMON-PRIOR> 18608946
<ACCUMULATED-NII-CURRENT> (108311)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (49789266)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (410480)<F1>
<NET-ASSETS> 121733517
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 15210057<F1>
<OTHER-INCOME> 465664<F1>
<EXPENSES-NET> (3417683)<F1>
<NET-INVESTMENT-INCOME> 12258038<F1>
<REALIZED-GAINS-CURRENT> (2095870)<F1>
<APPREC-INCREASE-CURRENT> 3772798<F1>
<NET-CHANGE-FROM-OPS> 13934966<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (8230537)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 419235
<NUMBER-OF-SHARES-REDEEMED> (4563587)
<SHARES-REINVESTED> 404778
<NET-CHANGE-IN-ASSETS> (29081954)
<ACCUMULATED-NII-PRIOR> (5046)<F1>
<ACCUMULATED-GAINS-PRIOR> (48065256)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1154038<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3418983<F1>
<AVERAGE-NET-ASSETS> 135199605
<PER-SHARE-NAV-BEGIN> 8.104
<PER-SHARE-NII> 0.505
<PER-SHARE-GAIN-APPREC> 0.073
<PER-SHARE-DIVIDEND> (0.495)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.187
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> VKAC U.S. GOVERNMENT TRUST FOR INCOME FUND - CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 173152883<F1>
<INVESTMENTS-AT-VALUE> 172603782<F1>
<RECEIVABLES> 2412960<F1>
<ASSETS-OTHER> 98<F1>
<OTHER-ITEMS-ASSETS> 182830<F1>
<TOTAL-ASSETS> 175199670<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1450360<F1>
<TOTAL-LIABILITIES> 1450360<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 19633089
<SHARES-COMMON-STOCK> 1674790
<SHARES-COMMON-PRIOR> 2294682
<ACCUMULATED-NII-CURRENT> (108311)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (49789266)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (410480)<F1>
<NET-ASSETS> 13710141
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 15210057<F1>
<OTHER-INCOME> 465664<F1>
<EXPENSES-NET> (3417683)<F1>
<NET-INVESTMENT-INCOME> 12258038<F1>
<REALIZED-GAINS-CURRENT> (2095870)<F1>
<APPREC-INCREASE-CURRENT> 3772798<F1>
<NET-CHANGE-FROM-OPS> 13934966<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (961509)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76387
<NUMBER-OF-SHARES-REDEEMED> (753064)
<SHARES-REINVESTED> 56785
<NET-CHANGE-IN-ASSETS> (4885919)
<ACCUMULATED-NII-PRIOR> (5046)<F1>
<ACCUMULATED-GAINS-PRIOR> (48065256)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1154038<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3418983<F1>
<AVERAGE-NET-ASSETS> 15778453
<PER-SHARE-NAV-BEGIN> 8.104
<PER-SHARE-NII> 0.503
<PER-SHARE-GAIN-APPREC> 0.074
<PER-SHARE-DIVIDEND> (0.495)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.186
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
