<PAGE>
As filed with the Securities and Exchange Commission on
September 28, 1998
File No. 33-51294
File No. 811-7140
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 25 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 27 /X/
--------------
VAN KAMPEN SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Office)
Registrant's Telephone Number (630) 684-6000
Ronald A. Nyberg, Esquire
Executive Vice President, General Counsel and Secretary
Van Kampen Investments, 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 BE EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
/x/ ON (SEPTEMBER 30, 1998) PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) 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 $0.001 PER SHARE
<PAGE>
VAN KAMPEN SERIES FUND, INC.
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
PART A - VAN KAMPEN EMERGING MARKETS DEBT, VAN KAMPEN GLOBAL FIXED
INCOME, VAN KAMPEN HIGH YIELD & TOTAL RETURN AND VAN KAMPEN WORLDWIDE HIGH
INCOME FUNDS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information Financial Highlights;
Performance Information
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Valuation of Shares;
Dividends and Distributions;
Taxes; General Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Valuation of Shares
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
<PAGE>
N-1A ITEM NO. LOCATION
PART A - VAN KAMPEN AGGRESSIVE EQUITY, VAN KAMPEN AMERICAN VALUE,
VAN KAMPEN EQUITY GROWTH, VAN KAMPEN MID CAP GROWTH, VAN KAMPEN
U.S. REAL ESTATE AND VAN KAMPEN VALUE FUNDS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information Financial Highlights;
Performance Information
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Valuation of Shares;
Dividends and Distributions;
Taxes; General Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Valuation of Shares
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
<PAGE>
N-1A ITEM NO. LOCATION
PART A - VAN KAMPEN ASIAN GROWTH, VAN KAMPEN EMERGING MARKETS,
VAN KAMPEN GLOBAL EQUITY, VAN KAMPEN GLOBAL EQUITY ALLOCATION,
VAN KAMPEN INTERNATIONAL MAGNUM, VAN KAMPEN JAPANESE EQUITY
AND VAN KAMPEN LATIN AMERICAN FUNDS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information Financial Highlights;
Performance Information
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Valuation of Shares;
Dividends and Distributions;
Taxes; General Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Valuation of Shares
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
<PAGE>
N-1A ITEM NO. LOCATION
PART A - MORGAN STANLEY MONEY MARKET, MORGAN STANLEY TAX-FREE MONEY MARKET AND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUNDS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information Financial Highlights;
Performance Information
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Dividends and
Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
<PAGE>
N-1A ITEM NO. LOCATION
PART A - VAN KAMPEN EUROPEAN EQUITY FUND
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Dividends and
Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
<PAGE>
N-1A ITEM NO. LOCATION
PART A - VAN KAMPEN GLOBAL FRANCHISE FUND
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Dividends and
Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
<PAGE>
N-1A ITEM NO. LOCATION
PART A - VAN KAMPEN GROWTH AND INCOME FUND II
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Dividends and
Distributions; Taxes; General
Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
- ---------------
* Omitted since the answer is negative or the Item is not applicable.
** Information required by Item 5A will be contained in the 1998 Annual Reort
to Shareholders, except for the following portfolios which were not
operational at June 30, 1998: Van Kampen Emerging Markets Debt Fund, Van
Kampen European Equity Fund, Van Kampen Global Equity Fund, Van Kampen
Growth and Income Fund II, Van Kampen Japanese Equity Fund, Van Kampen
Mid Cap Growth Fund, and Morgan Stanley Tax-Free Money Market Fund.
<PAGE>
N-1A ITEM NO. LOCATION
PART B - ALL FUNDS
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History *
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Limitations; Determining
Maturities of Certain
Instruments; Description of
Securities and Ratings
Item 14. Management of the Fund Management of the Company
Item 15. Control Persons and Principal Holders
of Securities Management of the Company;
General Information
Item 16. Investment Advisory and Other Services Management of the Company;
General Information
Item 17. Brokerage Allocation and Other
Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Purchase of Shares; Redemption
of Shares; Money Market Fund
Net Asset Value; General
Information
Item 20. Tax Status Investment Objectives and
Policies; Federal Income Tax;
Federal Tax Treatment of
Forward Currency Contracts and
Exchange Rate Changes; Taxes
and Foreign Shareholders;
General Information
Item 21. Underwriters Management of the Company
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
- ---------------
* Omitted since the answer is negative or the Item is not applicable.
PART C - OTHER INFORMATION
Part C contains the information required by the Items of the Form-N-1A under
such Items as set forth in the Form N-1A.
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN EMERGING MARKETS DEBT FUND
VAN KAMPEN GLOBAL FIXED INCOME FUND
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
--------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of the four portfolios listed above (each, a "Fund," and
together, the "Funds").
The Funds are designed to make available to retail investors the expertise
of Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator") and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser ("MSAM" or the "Sub-
Adviser") and Van Kampen Funds Inc. as the Funds' distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers"). As of the date
of this Prospectus, the Van Kampen Emerging Markets Debt Fund is not offering
shares.
THE VAN KAMPEN EMERGING MARKETS DEBT FUND, VAN KAMPEN HIGH YIELD & TOTAL
RETURN FUND AND VAN KAMPEN WORLDWIDE HIGH INCOME FUND NORMALLY INVEST BETWEEN
80% AND 100% OF THEIR RESPECTIVE TOTAL ASSETS IN LOWER RATED AND UNRATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE SUBJECT TO GREATER
RISKS THAN THOSE INVOLVED IN HIGHER RATED BONDS, INCLUDING THE RISK OF DEFAULT.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THESE FUNDS. SEE "ADDITIONAL INVESTMENT INFORMATION -- LOWER RATED AND UNRATED
DEBT SECURITIES."
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above. The Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 5
Financial Highlights....................................................................................... 8
Investment Objectives and Policies......................................................................... 14
Additional Investment Information.......................................................................... 20
Investment Limitations..................................................................................... 29
Management of the Company.................................................................................. 30
Purchase of Shares......................................................................................... 33
Shareholder Services....................................................................................... 41
Redemption of Shares....................................................................................... 43
Valuation of Shares........................................................................................ 45
Portfolio Transactions..................................................................................... 46
Performance Information.................................................................................... 47
Dividends and Distributions................................................................................ 48
Taxes...................................................................................................... 48
General Information........................................................................................ 49
Appendix A--Description of Corporate Bond Ratings.......................................................... A-1
</TABLE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Funds, the Adviser or the Distributor. This
Prospectus does not constitute an offer by the Funds 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 Funds to make
such an offer in such jurisdiction.
2
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-three portfolios which are designed
to offer investors a range of investment choices with Van Kampen Investment
Advisory Corp. (the "Adviser") providing services as adviser and administrator
and its affiliate, Morgan Stanley Asset Management Inc. ("MSAM" or the
"Sub-Adviser"), providing services as sub-adviser. Van Kampen Funds Inc. (the
"Distributor") provides services as Distributor.
This Prospectus describes Class A, Class B and Class C shares of the four
portfolios shown below. For ease of reference, the words "Van Kampen," which
begin the name of each portfolio, are not used throughout this Prospectus. The
investment objective of each Fund is as follows:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging markets countries. As of the date of
this Prospectus, the Emerging Markets Debt Fund is not offering shares.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD & TOTAL RETURN FUND seeks to maximize total return by
investing in a diversified portfolio of high yield, high risk income
securities that offer a yield above that generally available on debt
securities in the four highest rating categories of the recognized rating
services.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding, high risk fixed
income securities of issuers located throughout the world.
There can be no assurance a Fund will achieve its investment objective.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds will invest in securities of
foreign issuers, including emerging country securities. Securities of foreign
issuers and, in particular, emerging country securities are subject to certain
risks not typically associated with domestic securities. See "Additional
Investment Information--Foreign Investment" for more information. The Emerging
Markets Debt and Worldwide High Income Funds invest in securities of issuers
located in developing countries and emerging markets, which may impose greater
liquidity risks and other risks not typically associated with investing in the
more established markets of developed countries. The Funds may also invest in
sovereign debt that is considered to be speculative in nature and involves a
high degree of risk. The Funds may invest in forward foreign currency exchange
contracts, and foreign currency exchange futures and options. Each Fund may
invest in securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. Such securities may be
less liquid than publicly traded securities.
The Emerging Markets Debt, High Yield & Total Return and Worldwide High
Income Funds may invest in lower rated and unrated debt securities which are
considered more speculative with regard to the payment of interest and return of
principal than higher rated debt obligations. See "Additional Investment
Information -- Lower Rated and Unrated Debt Securities." The Emerging Markets
Debt and Worldwide High Income Funds may borrow money for leveraging in an
amount not in excess of 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than borrowing, and
engage in reverse repurchase agreements and short sales. Such practices involve
special risks. See "Additional Investment Information -- Borrowing and Other
Forms of Leverage", "-- Reverse Repurchase Agreements" and "-- Short Sales."
In addition, the Funds may invest in derivatives, which include options,
futures and options on futures. The Emerging Markets Debt, Global Fixed Income
and Worldwide High Income Funds are non-diversified portfolios which may invest
a greater portion of their assets in the securities of a smaller number of
issuers and, as a result, will be subject to greater risks resulting from such
practice than a portfolio which is diversified. Each
3
<PAGE>
Fund may invest in repurchase agreements, lend its portfolio securities,
purchase securities on a when-issued or delayed delivery basis, and borrow
money. Each of these investment strategies involves specific risks which are
described under "Investment Objectives and Policies" and "Additional Investment
Information" herein and under "Investment Objectives and Policies" in the
Statement of Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value per share plus a maximum initial sales
charge of 4.75% which initial sales charge may be reduced on certain larger
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Funds are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of a Fund,
except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of a Fund, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
4
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL HIGH YIELD WORLDWIDE
EMERGING FIXED & TOTAL HIGH
MARKETS INCOME RETURN INCOME
SHAREHOLDER TRANSACTION EXPENSES DEBT FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A.................................. 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1)
Class B.................................. None None None None
Class C.................................. None None None None
Maximum Deferred Sales Load (as a percentage
of the lesser of initial purchase price or
current market value)
Class A
For Purchases up to $999,999........... None None None None
For Purchases of $1,000,000 or more.... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B.................................. 4.00%(3) 4.00%(3) 4.00%(3) 4.00%(3)
Class C.................................. 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Redemption Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Exchange Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. See "Purchase of Shares."
(2) Purchases of Class A shares of the Funds which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Participating Funds (as defined under "Purchase of Shares - Quantity
Discounts"), aggregate to $1 million or more are not subject to an initial
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Certain other
purchases are not subject to an initial sales charge. See "Purchase of
Shares."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds are subject to a maximum CDSC of 4.00% which decreases to 0.00% after
five years. See "Purchase of Shares."
(4) Purchases of Class C shares of the Funds are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. See "Purchase of Shares."
5
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES HIGH YIELD WORLDWIDE
- -------------------------------------------------- EMERGING & TOTAL HIGH
MARKETS DEBT GLOBAL FIXED RETURN INCOME
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) FUND INCOME FUND FUND FUND
--------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Investment Advisory Fee (after fee waiver) (5)
Class A....................................... 1.25% 0.00% 0.11% 0.75%
Class B....................................... 1.25% 0.00% 0.11% 0.75%
Class C....................................... 1.25% 0.00% 0.11% 0.75%
12b-1 Distribution and Service Fees
Class A (6)................................... 0.25% 0.25% 0.25% 0.25%
Class B (6)................................... 1.00% 1.00% 1.00% 1.00%
Class C (6)................................... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense reimbursement) (5)
Class A....................................... 0.55% 1.20% 0.89% 0.45%
Class B....................................... 0.55% 1.20% 0.89% 0.45%
Class C....................................... 0.55% 1.20% 0.89% 0.45%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A....................................... 2.05% 1.45% 1.25% 1.45%
Class B....................................... 2.80% 2.20% 2.00% 2.20%
Class C....................................... 2.80% 2.20% 2.00% 2.20%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive a portion of its advisory fees and/or to
reimburse a portion of expenses of the Emerging Markets Debt, Global Fixed
Income and High Yield & Total Return Funds, if necessary, if the total
annual operating expenses of such Funds, as a percentage of average daily
net assets, would exceed the percentages set forth in the table above. The
following table sets forth for each of these Funds investment advisory fees
and expected total operating expenses absent fee waivers and/or expense
reimbursements.The Adviser in its discretion may terminate voluntary fee
waivers and/or reimbursements at any time. Absent the waiver of fees or
reimbursement of expenses, the amounts in the examples below would be
greater.
<TABLE>
<CAPTION>
GLOBAL HIGH YIELD
EMERGING FIXED & TOTAL
MARKETS INCOME RETURN
DEBT FUND FUND FUND
---------- ---------- ----------
<S> <C> <C> <C>
Investment Advisory Fees
All Classes.......................... 1.25% 0.75% 0.75%
Total Operating Expenses
Class A.............................. 2.05% 3.00% 1.89%
Class B.............................. 2.80% 3.75% 2.64%
Class C.............................. 2.80% 3.75% 2.64%
</TABLE>
With respect to the Worldwide High Income Fund, the Adviser has agreed to
waive a portion of its advisory fees and/or reimburse a portion of the Fund's
expenses if the total annual operating expenses would exceed 1.55%, 2.30% and
2.30% for Class A, Class B and Class C shares, respectively. For further
information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company--Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Funds will bear directly or
indirectly. The expenses and fees for the Global Fixed Income, High Yield &
Total Return and Worldwide High Income Funds are based on actual figures for the
fiscal year ended June 30, 1998. The expenses and fees for the Emerging Markets
Debt Fund are based on the advisory agreement, 12b-1 plan and estimates of other
expenses because the Fund has not commenced investment operations as of June 30,
1998.
6
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of each Fund, including the maximum 4.75%
initial sales charge, (ii) Class B shares of each Fund, which have a CDSC, but
no initial sales charge and (iii) Class C shares of each Fund, which have a
CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
GLOBAL HIGH YIELD WORLDWIDE
EMERGING FIXED & TOTAL HIGH
MARKETS INCOME RETURN INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A shares
1 Year............................................. $ 67(1) $ 62(1) $ 60(1) $ 62(1)
3 Years............................................ 109 91 85 92
5 Years............................................ * 123 113 124
10 Years........................................... * 213 191 214
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................. 68 62 60 62
3 Years............................................ 117 99 93 99
5 Years............................................ * 133 123 133
10 Years (2)....................................... * 234 213 237
(Assuming no redemption)
1 Year............................................. 28 22 20 22
3 Years............................................ 87 69 63 69
5 Years............................................ * 118 108 118
10 Years (2)....................................... * 234 213 237
Class C shares
(Assuming complete redemption immediately prior
to the end of period)
1 Year............................................. 38 32 30 32
3 Years............................................ 87 69 63 69
5 Years............................................ * 118 108 118
10 Years........................................... * 253 233 253
Class C shares
(Assuming no redemption)
1 Year............................................. 28 22 20 22
3 Years............................................ 87 69 63 69
5 Years............................................ * 118 108 118
10 Years........................................... * 253 233 253
</TABLE>
- ------------------
* Because the Emerging Markets Debt Fund has not commenced investment
operations as of the date of this Prospectus, the Fund has not projected
expenses beyond the three-year period shown.
(1) The example reflects Class A shares sold subject to the maximum 4.75%
initial sales charge. Certain large purchases may be subject to a reduced
initial sales charge. Purchases of Class A shares of the Funds which, when
combined with the value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
(2) The expenses shown reflect that Class B shares automatically convert to
Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Global Fixed Income, High Yield & Total Return and
Worldwide High Income Funds for each of the periods presented. The financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1998 Annual Report to Shareholders. The financial statements
are incorporated into the Funds' Statement of Additional Information. The
foregoing Funds' financial highlights for each of the periods presented have
been audited by PricewaterhouseCoopers LLP, whose report thereon (which was
unqualified) is also incorporated into the Statement of Additional Information.
Additional performance information about the Company is contained in the
Company's Annual Report and Semi-Annual Report. The Annual Report, Semi-Annual
Report and the Statement of Additional Information are available at no cost from
the Company at the address and telephone number noted on the cover page of this
Prospectus. The following information should be read in conjunction with the
financial statements and notes thereto. Financial highlights are not presented
for the Emerging Markets Debt Fund because it had not commenced investment
operations as of the date of this Prospectus.
8
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A ---------------------------
--------------------------------------------------------- AUGUST
JANUARY 1,
YEAR YEAR YEAR YEAR YEAR 4, YEAR YEAR 1995+
ENDED ENDED ENDED ENDED ENDED 1993* ENDED ENDED TO
JUNE JUNE JUNE JUNE JUNE TO JUNE JUNE JUNE JUNE
SELECTED PER SHARE DATA AND 30, 30, 30, 30, 30, 30, 30, 30, 30,
RATIOS 1998# 1997 1996 1995 1994 1993 1998# 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 10.00 $ 9.91 $ 9.91 $ 10.24
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.39 0.44 0.53 0.56 0.52 0.25 0.32 0.41 0.64
Net Realized and Unrealized
Gain (Loss) 0.13 (0.02) (0.01) 0.50 (0.42) 0.55 0.13 (0.07) (0.26)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations 0.52 0.42 0.52 1.06 0.10 0.80 0.45 0.34 0.38
------- ------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.39) (0.35) (0.79) (0.36) (0.50) (0.25) (0.33) (0.29) (0.69)
In Excess of Net Investment
Income (0.01) (0.06) (0.02) -- (0.12) -- (0.01) (0.05) (0.02)
Net Realized Gain (0.05) -- -- -- (0.47) -- (0.05) -- --
In Excess of Net Realized
Gain -- -- -- -- (0.03) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions (0.45) (0.41) (0.81) (0.36) (1.12) (0.25) (0.39) (0.34) (0.71)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.02 $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 9.97 $ 9.91 $ 9.91
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN (1) 5.36% 4.27% 5.20% 11.41% 0.41% 8.02% 4.65% 3.48% 3.76%
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 4,413 $ 6,407 $ 7,432 $11,092 $10,369 $ 6,633 $ 1,425 $ 1,716 $ 1,440
Ratio of Expenses to Average
Net Assets 1.45% 1.45% 1.45% 1.45% 1.45% 1.45%** 2.20% 2.20% 2.20%**
Ratio of Net Investment Income
to Average Net Assets 3.94% 4.40% 5.02% 5.84% 4.70% 5.00%** 3.21% 3.65% 3.38%**
Portfolio Turnover Rate 78% 170% 223% 169% 168% 55% 78% 170% 223%
- ------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income $0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.11 $ 0.07 $ 0.15 $ 0.13 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.00% 2.57% 2.16% 2.22% 2.48% 2.88%** 3.75% 3.37% 3.57%**
Net Investment Income to
Average Net Assets 2.42% 3.25% 4.31% 5.07% 3.67% 3.57%** 1.65% 2.45% 2.01%**
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------
JANUARY
YEAR YEAR YEAR YEAR YEAR 4,
ENDED ENDED ENDED ENDED ENDED 1993*
JUNE JUNE JUNE JUNE JUNE TO JUNE
SELECTED PER SHARE DATA AND 30, 30, 30, 30, 30, 30,
RATIOS 1998# 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.32 0.39 0.37 0.49 0.43 0.21
Net Realized and Unrealized
Gain (Loss) 0.13 (0.05) 0.08 0.47 (0.40) 0.55
------- ------- ------- ------- ------- -------
Total From Investment
Operations 0.45 0.34 0.45 0.96 0.03 0.76
------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.33) (0.29) (0.73) (0.30) (0.44) (0.20)
In Excess of Net Investment
Income (0.01) (0.05) (0.02) -- (0.11) --
Net Realized Gain (0.05) -- -- -- (0.47) --
In Excess of Net Realized
Gain -- -- -- -- (0.03) --
------- ------- ------- ------- ------- -------
Total Distributions (0.39) (0.34) (0.75) (0.30) (1.05) (0.20)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.96 $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN (1) 4.65% 3.48% 4.47% 10.24% (0.25)% 7.61%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 1,888 $ 2,445 $ 2,844 $ 5,965 $ 5,407 $ 6,120
Ratio of Expenses to Average
Net Assets 2.20% 2.20% 2.20% 2.20% 2.20% 2.20%**
Ratio of Net Investment Income
to Average Net Assets 3.21% 3.65% 4.35% 5.09% 3.95% 4.25%**
Portfolio Turnover Rate 78% 170% 223% 169% 168% 55%
- ------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.15 $ 0.12 $ 0.06 $ 0.08 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.75% 3.35% 2.87% 2.97% 3.29% 3.63%**
Net Investment Income to
Average Net Assets 1.67% 2.48% 3.68% 4.32% 2.86% 2.82%**
- ------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
10
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
HIGH YIELD & TOTAL RETURN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------- ---------------------------- -------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996 1998# 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.86 $ 11.92 $ 12.00 $ 12.86 $ 11.93 $ 12.00 $ 12.86 $ 11.93 $ 12.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.97 1.07 0.13 0.87 0.98 0.12 0.86 0.99 0.12
Net Realized and Unrealized
Gain (Loss) 0.35 0.99 (0.09) 0.34 0.99 (0.09) 0.35 0.98 (0.09)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.32 2.06 0.04 1.21 1.97 0.03 1.21 1.97 0.03
-------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTION:
Net Investment Income (0.97) (1.07) (0.12) (0.89) (0.99) (0.10) (0.89) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) -- (0.55) (0.05) -- (0.55) (0.05) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (1.52) (1.12) (0.12) (1.44) (1.04) (0.10) (1.44) (1.04) (0.10)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.66 $ 12.86 $ 11.92 $ 12.63 $ 12.86 $ 11.93 $ 12.63 $ 12.86 $ 11.93
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 10.81% 18.12% 0.29% 9.86% 17.22% 0.21% 9.86% 17.21% 0.21%
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 7,813 $ 8,980 $ 3,907 $ 18,420 $ 8,617 $ 3,421 $ 8,145 $ 4,970 $ 3,316
Ratio of Expenses to Average
Net Assets 1.25% 1.25% 1.25%** 2.00% 2.00% 2.00%** 2.00% 2.00% 2.00%**
Ratio of Net Investment Income
to Average Net Assets 7.42% 8.83% 6.85%** 6.70% 7.99% 6.08%** 6.63% 8.03% 6.07%**
Portfolio Turnover Rate 81% 104% 10% 81% 104% 10% 81% 104% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.08 $ 0.10 $ 0.04 $ 0.08 $ 0.10 $ 0.04 $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.89% 2.04% 3.51%** 2.64% 2.82% 4.25%** 2.64% 2.88% 4.25%**
Net Investment Income to
Average Net Assets 6.78% 8.04% 4.59%** 6.04% 7.17% 3.83%** 6.01% 7.15% 3.82%**
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
11
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------------------------- ------------
APRIL 21,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994* YEAR ENDED
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1995 1994 1998#
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.00 $ 14.20
------------ ------------ ------------ ------------ ------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.15 1.25 1.36 1.26 0.18 1.04
Net Realized and Unrealized
Gain (Loss) (0.67) 2.30 0.80 (0.52) 0.16 (0.65)
------------ ------------ ------------ ------------ ------ ------------
Total From Investment
Operations 0.48 3.55 2.16 0.74 0.34 0.39
------------ ------------ ------------ ------------ ------ ------------
DISTRIBUTIONS
Net Investment Income (1.09) (1.25) (1.26) (1.22) (0.17) (1.00)
Net Realized Gain (1.19) (0.51) -- (0.12) -- (1.19)
------------ ------------ ------------ ------------ ------ ------------
Total Distributions (2.28) (1.76) (1.26) (1.34) (0.17) (2.19)
------------ ------------ ------------ ------------ ------ ------------
NET ASSET VALUE, END OF PERIOD $ 12.46 $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.40
------------ ------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------------ ------ ------------
TOTAL RETURN (1) 3.40% 30.29% 19.61% 6.87% 2.86% 2.63%
------------ ------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------------ ------ ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 91,579 $ 76,439 $ 41,493 $ 14,819 $ 6,857 $ 146,401
Ratio of Expenses to Average
Net Assets 1.45% 1.52% 1.55% 1.55% 1.55%** 2.20%
Ratio of Net Investment Income
to Average Net Assets 8.36% 9.73% 11.95% 11.53% 8.29%** 7.64%
Portfolio Turnover Rate 156% 157% 220% 178% 19% 156%
- ------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ -- $ -- $ 0.02 $ 0.05 $ 0.02 $ --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 1.69% 1.97% 3.23%** --
Net Invesment Income to
Average Net Assets -- -- 11.81% 11.11% 6.61%** --
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AUGUST 1,
YEAR ENDED 1995+
SELECTED PER SHARE DATA AND JUNE 30, TO JUNE 30,
RATIOS 1997 1996
<S> <C> <C>
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.44 $ 11.63
------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.07 1.18
Net Realized and Unrealized
Gain (Loss) 2.35 0.72
------------ ------------
Total From Investment
Operations 3.42 1.90
------------ ------------
DISTRIBUTIONS
Net Investment Income (1.15) (1.09)
Net Realized Gain (0.51) --
------------ ------------
Total Distributions (1.66) (1.09)
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.20 $ 12.44
------------ ------------
------------ ------------
TOTAL RETURN (1) 29.14% 17.07%
------------ ------------
------------ ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 78,340 $ 26,174
Ratio of Expenses to Average
Net Assets 2.27% 2.30%**
Ratio of Net Investment Income
to Average Net Assets 8.86% 12.06%**
Portfolio Turnover Rate 157% 220%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ -- $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- 2.47%**
Net Invesment Income to
Average Net Assets -- 11.89%**
- ------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
12
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------
APRIL 21,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
RATIOS 1998# 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 14.21 $ 12.45 $ 11.58 $ 12.16 $ 12.00
------------ ------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.04 1.16 1.30 1.17 0.17
Net Realized and Unrealized
Gain (Loss) (0.66) 2.26 0.77 (0.50) 0.15
------------ ------------ ------------ ------------ ------
Total From Investment
Operations 0.38 3.42 2.07 0.67 0.32
------------ ------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (1.00) (1.15) (1.20) (1.13) (0.16)
Net Realized Gain (1.19) (0.51) -- (0.12) --
------------ ------------ ------------ ------------ ------
Total Distributions (2.19) (1.66) (1.20) (1.25) (0.16)
------------ ------------ ------------ ------------ ------
NET ASSET VALUE, END OF PERIOD $ 12.40 $ 14.21 $ 12.45 $ 11.58 $ 12.16
------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------
TOTAL RETURN (1) 2.55% 29.12% 18.71% 6.20% 2.62%
------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 60,197 $ 41,709 $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to Average
Net Assets 2.20% 2.27% 2.30% 2.30% 2.30%**
Ratio of Net Investment Income
to Average Net Assets 7.62% 9.04% 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 156% 157% 220% 178% 19%
- ------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ -- $ -- $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 2.44% 2.74% 4.00%**
Net Invesment Income to
Average Net Assets -- -- 11.26% 10.28% 5.84%**
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies it employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. There can be no assurance that
a Fund will attain its investment objective. For more information about certain
investment practices of the Funds, see "Additional Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.
THE EMERGING MARKETS DEBT FUND
The investment objective of the Fund is to seek high total return. In
seeking to achieve this objective, the Fund will seek to invest at least 65% of
its total assets in debt securities of government and government-related issuers
located in emerging markets countries (including participations in loans between
governments and financial institutions) and of entities organized to restructure
outstanding debt of such issuers. In addition, the Fund may invest up to 35% of
its total assets in debt securities of corporate issuers located in or organized
under the laws of emerging markets countries. As used in this Prospectus, the
term "emerging markets country" applies to any country which, in the opinion of
the Adviser, is generally considered to be an emerging or developing country by
the international financial community, which includes the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. Government, government-related and
restructured debt securities in emerging markets will consist of (i) debt
securities or obligations issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in emerging
markets countries (including participations in loans between governments and
financial institutions), (ii) debt securities or obligations issued by
government owned, controlled or sponsored entities located in emerging markets
countries, and (iii) interests in issuers organized and operated for the purpose
of restructuring the investment characteristics of instruments issued by any of
the entities described above.
The Adviser intends to invest the Fund's assets in emerging markets country
debt securities that provide a high level of current income, while at the same
time holding the potential for capital appreciation if the perceived
creditworthiness of the issuer improves due to improving economic, financial,
political, social or other conditions in the country in which the issuer is
located. The Fund will focus its investments on those emerging market countries
in which it believes the economies are developing strongly and in which the
markets are becoming more sophisticated. The Fund expects that its investments
in emerging markets country debt securities will be made primarily in some or
all of the following emerging countries:
Algeria
Argentina
Brazil
Bulgaria
Chile
China mainland and
Hong Kong
Colombia
Costa Rica
Czech Republic
Democratic Republic
of Congo
Dominican Republic
Ecuador
Egypt
Greece
Hungary
India
Indonesia
Ivory Coast
Jamaica
Jordan
Malaysia
Mexico
Morocco
Nicaragua
Nigeria
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Russia
Slovakia
South Africa
Thailand
Trinidad & Tobago
Tunisia
Turkey
Uruguay
Venezuela
In selecting emerging markets country debt securities for investment by the
Fund, the Adviser will apply a market risk analysis contemplating assessment of
factors such as liquidity, volatility, tax implications, interest rate
sensitivity, counterparty risks and technical market considerations. Currently,
investing in many emerging markets country securities is not feasible or may
involve unacceptable political risks. As opportunities to invest in debt
securities in other countries develop, the Fund expects to expand and further
diversify the emerging
14
<PAGE>
markets countries in which it invests. While the Fund generally is not
restricted in the portion of its assets which may be invested in a single
country or region, it is anticipated that, under normal conditions, the Fund's
assets will be invested in issuers in at least three countries.
Emerging markets country debt securities held by the Fund will take the form
of bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage and other asset-backed securities,
loans, loan participations, loan assignments and interests issued by entities
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by emerging markets country issuers. U.S.
Dollar-denominated emerging markets country debt securities held by the Fund
will generally be listed but not traded on a securities exchange, and non-U.S.
Dollar-denominated securities held by the Fund may or may not be listed or
traded on a securities exchange. The Fund will be subject to no restrictions on
the maturities of the emerging markets country debt securities it holds; those
maturities may range from overnight to 30 years. Investments in emerging markets
country debt securities entail special investment risks.
The Fund is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of the Fund's assets may be invested in non-U.S. Dollar-denominated
securities. The portion of the Fund's assets invested in securities denominated
in currencies other than the U.S. Dollar will vary depending on market
conditions. Although the Fund is permitted to engage in a wide variety of
investment practices designed to hedge against currency exchange rate risks with
respect to its holdings of non-U.S. Dollar-denominated debt securities, the Fund
may be limited in its ability to hedge against these risks.
Emerging markets country debt securities in which the Fund may invest will
be subject to high risk and will not be required to meet a minimum rating
standard and may not be rated for creditworthiness by any internationally
recognized credit rating organization. The Fund's investments are expected to be
rated in the lower and lowest rating categories of internationally recognized
credit rating organizations or are expected to be unrated securities of
comparable quality. These types of debt obligations are predominantly
speculative with respect to the capacity to pay interest and repay principal in
accordance with their terms and generally involve a greater risk of default and
of volatility in price than securities in higher rating categories. See
"Additional Investment Information -- Lower Rated and Unrated Debt Securities."
The Fund's investments in government, government-related and restructured debt
instruments are subject to special risks, including the issuer's inability or
unwillingness to repay principal and interest, requests to reschedule or
restructure outstanding debt and requests to extend additional loan amounts. The
Fund may have limited recourse in the event of default on such debt instruments.
The Fund is authorized to borrow up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, for investment purposes to increase the opportunity for
greater return and for payment of dividends. Such borrowings would constitute
leverage, which is a speculative characteristic. See "Additional Investment
Information -- Borrowing and Other Forms of Leverage." The Fund may also enter
into reverse repurchase agreements.
The Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may also invest in zero coupon, pay-in-kind or
deferred payment securities and in securities that may be collateralized by zero
coupon securities (such as Brady Bonds).
For temporary defensive purposes, the Fund may invest a portion or all of
its assets in money market instruments and short- and medium-term debt
securities that the Adviser believes to be of high quality or hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
15
<PAGE>
THE GLOBAL FIXED INCOME FUND
The investment objective of the Global Fixed Income Fund is to produce an
attractive real rate of return while preserving capital by investing in fixed
income securities of issuers located throughout the world, including U.S.
issuers. The Fund will, under normal market conditions, invest at least 65% of
the value of its total assets in fixed income securities of issuers in at least
three different countries. The Fund seeks to achieve its objective by investing
in United States government securities, foreign government securities,
securities of supranational entities, Eurobonds, corporate bonds and structured
investments with fixed income characteristics, with varying maturities
denominated in various currencies. In selecting portfolio securities, the
Adviser evaluates the currency, market, and individual features of the
securities being considered for investment.
The Adviser seeks to minimize investment risk by investing in a high quality
portfolio of debt securities, the majority of which will be rated in one of the
two highest rating categories by a nationally recognized statistical rating
organization (an "NRSRO") or, if unrated, will be of comparable quality as
determined by the Adviser under the supervision of the Board of Directors. U.S.
Government securities in which the Global Fixed Income Fund may invest include
obligations issued or guaranteed by the U.S. Government, such as U.S. Treasury
securities, as well as those backed by the full faith and credit of the United
States, such as obligations of the Government National Mortgage Association and
The Export-Import Bank. The Fund may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Fund must
look principally to the issuing or guaranteeing agency for ultimate repayment.
The Fund may invest in obligations issued or guaranteed by foreign governments
and their political subdivisions, authorities, agencies or instrumentalities,
and by supranational entities (such as the World Bank, The European Economic
Community, The Asian Development Bank and the European Coal and Steel
Community). Investment in foreign government securities will be limited to those
of developed nations which the Adviser believes to pose limited credit risk.
These countries currently include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland and The United Kingdom.
Corporate and supranational obligations in which the Fund will invest will be
limited to those rated "A" or better by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Rating Group ("S&P") or IBCA Ltd., or if unrated,
of comparable quality as determined by the Adviser under the supervision of the
Board of Directors.
The Adviser's approach to multi-currency, fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Fund's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.
Under normal circumstances, the Global Fixed Income Fund will have a neutral
investment position in medium-term securities (i.e., those with a remaining
maturity of between three and seven years) and will respond to changing interest
rate levels by shortening or lengthening portfolio maturity through investment
in longer- or shorter-term instruments. For example, the Fund will respond to
high levels of real interest rates through a lengthening in portfolio maturity.
Current and historical yield spreads among the three main market segments -- the
Government, Foreign and Euro markets -- guide the Adviser's selection of markets
and particular securities within those markets. The analysis of currencies is
made independent of the analysis of markets. Value in foreign exchange is
determined by relative purchasing power parity of a given currency. The Fund
seeks to invest in currencies currently undervalued based on purchasing power
parity. The Adviser analyzes current account and capital account performance and
real interest rates to adjust for shorter-term currency flows.
The Global Fixed Income Fund may invest in non-publicly traded securities,
private placements and restricted securities. The Global Fixed Income Fund will
occasionally enter into forward foreign currency exchange contracts. These are
used to hedge foreign currency exchange exposures when required.
16
<PAGE>
For temporary defensive purposes, the Global Fixed Income Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Global Fixed Income Fund, see "Additional Investment
Information" below.
THE HIGH YIELD & TOTAL RETURN FUND
The Fund seeks to maximize total return by investing in a diversified
portfolio of high yield, high risk income securities that offer a yield above
that generally available on debt securities in the four highest rating
categories of the NRSROs. The Fund normally invests between 80% and 100% of its
total assets in these higher yielding, high risk securities (commonly referred
to as "high yield bonds" or "junk bonds") which generally entail increased
credit and market risk. To mitigate these risks the Fund will diversify its
holdings by issuer, industry and credit quality, but investors should carefully
review the section below entitled "Additional Investment Information -- Lower
Rated and Unrated Debt Securities."
Appendix A to this Prospectus sets forth a description of the corporate bond
rating categories of Moody's and S&P. Corporate bonds rated below Baa by Moody's
or BBB by S&P are considered speculative. Securities in the lowest rating
categories may have predominantly speculative characteristics or may be in
default. Ratings of S&P and Moody's represent their opinions of the quality of
bonds and other debt securities they undertake to rate at the time of issuance.
However, ratings are not absolute standards of quality and may not reflect
changes in an issuer's creditworthiness. Accordingly, although the Adviser will
consider ratings, it will perform its own analysis and will not rely principally
on ratings. The Adviser will consider, among other things, the price of the
security, and the financial history and condition, the prospects and the
management of an issuer in selecting securities for the Fund. The Fund may buy
unrated securities that the Adviser believes are comparable to rated securities
and are consistent with the Fund's objective and policies. The Adviser may vary
the average maturity of the securities in the Fund without limit and there is no
restriction on the maturity of any individual security.
The table below provides a summary of the Fund's assets invested in rated
securities with the ratings assigned by S&P and in unrated securities determined
by the Adviser to be of comparable quality. These figures are dollar-weighted
averages of month-end portfolio holdings during the period ended June 30, 1998,
and are presented as a percentage of net assets. These percentages are
historical and are not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.
<TABLE>
<CAPTION>
UNRATED
SECURITIES
OF
RATED COMPARABLE
SECURITIES QUALITY AS
AS A A
PERCENTAGE PERCENTAGE
DEBT SECURITIES RATINGS OF OF
(STANDARD & POOR'S) NET ASSETS NET ASSETS
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C>
AA..........................................................
BBB.........................................................
BB..........................................................
B...........................................................
CCC.........................................................
CC..........................................................
C...........................................................
D...........................................................
Not Rated...................................................
</TABLE>
The High Yield & Total Return Fund may acquire fixed income securities of
both U.S. and foreign issuers, including debt obligations (e.g., bonds,
debentures, notes, equipment lease certificates, equipment trust certificates,
conditional sales contracts, commercial paper and obligations issued or
guaranteed by the U.S. Government, any foreign government with which the United
States maintains relations or any of their respective political subdivisions,
agencies or instrumentalities) and preferred stock. The Fund may not invest more
than 5% of its total assets at time of acquisition in either (1) equipment lease
certificates, equipment trust certificates and conditional sales contracts or
(2) limited partnership interests. The Fund may neither invest more than 20% of
its total assets in foreign securities nor invest more than 5% of its total
assets in foreign governmental issuers in any
17
<PAGE>
one country. The Fund's fixed income securities may have equity features, such
as conversion rights or warrants, and the Fund may invest up to 10% of its total
assets in equity securities other than preferred stock (common stocks, warrants
and rights and limited partnership interests). The Fund may invest up to 20% of
its total assets in fixed income securities that are investment grade (i.e.,
rated in one of the top four categories by an NRSRO or determined to be of
comparable quality) and have maturities of one year or less. For temporary
defensive purposes, the Fund may invest a portion or all of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality or hold cash. The Fund may invest in or own
securities of companies in various stages of financial restructuring, bankruptcy
or reorganization which are not currently paying interest or dividends. Such
securities may be rated C by Moody's or D by S&P or may be unrated but
determined to be of comparable quality by the Adviser. The total value, at time
of purchase, of the sum of all such securities will not exceed 10% of the value
of the Fund's total assets. Securities that are rated above C by Moody's or
above D by S&P (or are unrated but determined to be of comparable quality by the
Adviser) when purchased by the Fund that are later downgraded may continue to be
held by the Fund at the discretion of the Adviser.
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE WORLDWIDE HIGH INCOME FUND
The investment objective of the Worldwide High Income Fund is high current
income consistent with relative stability of principal and, secondarily, capital
appreciation, by investing primarily in a portfolio of high yielding, high risk
fixed income securities of issuers located throughout the world. The Fund seeks
to achieve its investment objective by allocating its assets among any or all of
three investment sectors: U.S. corporate lower rated and unrated debt
securities, emerging markets country debt securities and global fixed income
securities offering high real yields. The types of securities in each of these
investment sectors in which the Fund may invest are described below. In
selecting U.S. corporate lower rated and unrated debt securities for the Fund's
portfolio, the Adviser will consider, among other things, the price of the
security, and the financial history, condition, prospects and management of an
issuer. The Adviser intends to invest a portion of the Fund's assets in emerging
markets country debt securities that provide a high level of current income,
while at the same time holding the potential for capital appreciation if the
perceived creditworthiness of the issuer improves due to improving economic,
financial, political, social or other conditions in the country in which the
issuer is located. In addition, the Adviser will attempt to invest a portion of
the Fund's assets in fixed income securities of issuers in global fixed income
markets displaying high real (inflation adjusted) yields. Under normal
conditions, the Fund invests between 80% and 100% of its total assets in some or
all of three categories of higher yielding securities, some of which may entail
increased credit and market risk. Some or all of such higher yielding securities
will be lower rated or unrated debt securities commonly known as "junk bonds."
The Adviser's approach to multi-currency fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Fund's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.
Under normal market conditions, substantially all of the Worldwide High
Income Fund's investments may be in "junk bonds." Emerging markets country debt
securities in which the Fund may invest will be subject to high risk and will
not be required to meet a minimum rating standard and may not be rated for
creditworthiness by any internationally recognized credit rating organization.
The Fund's investments in U.S. corporate lower rated and unrated debt securities
and emerging markets country debt securities are expected to be rated in the
lower and lowest rating categories of internationally recognized credit rating
organizations or to be unrated securities of comparable quality. To mitigate the
risks associated with investments in such lower rated securities, the Fund will
diversify its holdings by market, issuer, industry and credit quality. For a
discussion of the risks
18
<PAGE>
associated with junk bonds, see "The High Yield & Total Return Fund" above.
Investors should also carefully review the section below entitled "Additional
Investment Information -- Risk Factors Relating to Investing in Lower Rated Debt
Securities."
The table below provides a summary of the Fund's assets invested in
securities with the ratings assigned by S&P and in unrated securities determined
by the Adviser to be of comparable quality. These figures are dollar-weighted
averages of month-end portfolio holdings during the period ended June 30, 1998,
and are presented as a percentage of net assets. These percentages are
historical and are not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.
<TABLE>
<CAPTION>
UNRATED
SECURITIES
OF
RATED COMPARABLE
SECURITIES QUALITY AS
AS A A
PERCENTAGE PERCENTAGE
DEBT SECURITIES RATINGS OF OF
(STANDARD & POOR'S) NET ASSETS NET ASSETS
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C>
A...........................................................
BBB.........................................................
BB..........................................................
B...........................................................
CCC.........................................................
CC..........................................................
C...........................................................
D...........................................................
Not Rated...................................................
</TABLE>
For a description of S&P ratings of fixed income securities, see Appendix A
to this Prospectus.
The Worldwide High Income Fund may invest in or own securities of companies
in various stages of financial restructuring, bankruptcy or reorganization which
are not currently paying interest or dividends, provided that the total value,
at the time of purchase, of all such securities will not exceed 10% of the value
of the Fund's total assets. The Fund may have limited recourse in the event of
default on such debt instruments. The Fund may invest in loans, assignments of
loans and participation in loans. The Fund may also invest in depositary
receipts issued by U.S. or foreign financial institutions.
The Worldwide High Income Fund is not restricted in the portion of its
assets which may be invested in securities denominated in a particular currency
and a substantial portion of the Fund's assets may be invested in non-U.S.
Dollar-denominated securities. The portion of the Fund's assets invested in
securities denominated in currencies other than the U.S. Dollar will vary
depending on market conditions. Although the Fund is permitted to engage in a
wide variety of investment practices designed to hedge against currency exchange
rate risks with respect to its holdings of non-U.S. Dollar-denominated debt
securities, the Fund may be limited in its ability to hedge against these risks.
The Fund may also engage in derivatives transactions.
The Worldwide High Income Fund may invest in zero coupon, pay-in-kind or
deferred payment securities, and in securities that may be collateralized by
zero coupon securities (such as Brady Bonds). The Worldwide High Income Fund may
invest in non-publicly traded securities, private placements and restricted
securities.
The Worldwide High Income Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. See
"Additional Investment Information -- Borrowing and Other Forms of Leverage."
The Fund may also enter into reverse repurchase agreements.
For temporary defensive purposes, the Worldwide High Income Fund may invest
a portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
The Fund may acquire fixed income securities, including debt obligations and
preferred stock. These fixed income securities may have equity features, such as
conversion rights or warrants and the Fund may invest up to 10% of its total
assets in equity securities other than preferred stock. The Fund may not invest
more than 5% of
19
<PAGE>
its total assets at the time of acquisition in either of (1) equipment lease
certificates, equipment trust certificates and conditional sales contracts or
(2) limited partnership interests. For a discussion of fixed income securities
of U.S. issuers, see "The High Yield & Total Return Fund" above. A portion of
the Worldwide High Income Fund's assets will be invested in emerging markets
country debt securities. For a discussion of emerging markets country debt
securities, see "The Emerging Markets Debt Fund" above. A portion of the
Worldwide High Income Fund's assets will be invested in global fixed income
securities. For a discussion of global fixed income securities, see "Global
Fixed Income Fund" above.
The average time to maturity of the Worldwide High Income Fund's securities
will vary depending upon the Adviser's perception of market conditions. The
Adviser invests primarily in medium-term securities (i.e., those with a
remaining maturity of approximately five years) in a market neutral environment.
When the Adviser believes that real yields are high, the Adviser lengthens the
remaining maturities of securities held by the Fund and, conversely, when the
Adviser believes real yields are low, it shortens the remaining maturities.
Thus, the Fund is not subject to any restrictions on the maturities of the debt
securities it holds, and the Adviser may vary the average maturity of the
securities held in the Fund's portfolio without limit.
For further information about the foregoing and certain additional
investment practices of the Fund, including investment in derivative securities,
see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Global Fixed Income and High Yield & Total Return Funds may borrow up to
10% of their total assets as a temporary measure for extraordinary or emergency
purposes. These Funds may not purchase additional securities when borrowings
exceed 5% of total assets. The Worldwide High Income Fund may enter into reverse
repurchase agreements in accordance with its investment objective and policies
and may borrow amounts up to 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing. The
Emerging Markets Debt Fund may borrow money (i) as a temporary measure for
extraordinary or emergency purposes, and (ii) in connection with reverse
repurchase agreements, provided that (i) and (ii) in combination do not exceed
33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings).
Borrowings by the Emerging Markets Debt and Wideworld High Income Funds may
result in leveraging. Leveraging will magnify declines as well as increases in
the net asset value of a Fund's shares and in the yield on a Fund's investments.
Although each Fund is authorized to borrow, it will do so only when the Adviser
believes that borrowing will benefit the Fund after taking into account
considerations such as the costs of borrowing and the likely investment returns
on securities purchased with borrowed monies. The extent to which each Fund may
borrow will also depend upon the availability of credit. No assurance can be
given that the Funds will be able to borrow on terms acceptable to the Funds and
the Adviser. Borrowing by a Fund will create the opportunity for increased net
income but, at the same time, will involve special risk considerations.
Borrowing will create interest expenses for the Fund which can exceed the income
from the assets obtained with the proceeds. To the extent the income derived
from securities purchased with funds obtained through borrowing exceeds the
interest and other expenses that the Fund will have to pay in connection with
such borrowing, the Fund's net income will be greater than if the Fund did not
borrow. Conversely, if the income from the assets obtained through borrowing is
not sufficient to cover the cost of borrowing, the net income of the Fund will
be less than if the Fund did not borrow, and therefore the amount available for
distribution to shareholders will be reduced. Each Fund expects that its
borrowing, for other than temporary purposes, will be made on a secured basis.
The Funds' custodian will either segregate the assets securing the borrowing for
the benefit of the lenders or arrangements will be made with a suitable
sub-custodian. If assets used to secure the borrowing decrease in value, the
Funds may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. The rights of any
lenders to the Fund to receive payments of interest on and repayments of
principal of borrowings will be senior to the rights of the Fund's shareholders,
and the terms of the Fund's borrowings may contain provisions that limit certain
activities of the Fund and could result in precluding the purchase of securities
and instruments that the Fund would otherwise purchase.
20
<PAGE>
DEPOSITARY RECEIPTS
The Emerging Markets Debt and Worldwide High Income Funds may invest in
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such depositary receipts become available. ADRs are securities,
typically issued by a U.S. financial institution (a "depositary"), that evidence
ownership interests in a security or a pool of securities issued by a foreign
issuer (the "underlying issuer") and deposited with the depositary. ADRs include
American Depositary Shares and New York Shares and may be "sponsored" or
"unsponsored." Sponsored ADRs are established jointly by a depositary and the
underlying issuer, whereas unsponsored ADRs may be established by a depositary
without participation by the underlying issuer. GDRs, EDRs and other types of
depositary receipts are typically issued by foreign depositaries, although they
may also be issued by U.S. depositaries, and evidence ownership interests in a
security or pool of securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the Funds' investment policies, a
Fund's investments in depositary receipts will be deemed to be investments in
the underlying securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when a Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value of securities held by the Fund against exchange rate fluctuations. While
such forward contracts may limit losses to a Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Also, it may be more difficult to obtain a judgment in a court outside
the United States.
The economies of individual emerging markets countries may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, currency depreciation, capital
21
<PAGE>
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. Emerging markets countries may have less
stable political environments than more developed countries. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act").
Some emerging countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized. The
Emerging Markets Debt Fund, Global Fixed Income Fund and Worldwide High Income
Fund may invest in these investment funds, including those advised by MSAM,
subject to applicable provisions of the 1940 Act, and other applicable laws.
If a Fund invests in such investment companies or investment funds, the
Fund's shareholders will bear not only their proportionate share of the expenses
of the Fund (including operating expenses and the fees of the Adviser), but also
will indirectly bear similar expenses of the underlying investment companies or
investment funds.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. A Fund will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Emerging Markets Debt and Worldwide High Income Funds may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between an issuer of sovereign or corporate debt obligations and one or more
financial institutions ("Lenders"). Such Funds' investments in Loans are
expected in most instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans ("Assignments")
from third parties. In the case of Participations, a Fund will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participations and only upon receipt by the
Lender of the payments from the borrower. In the event of the insolvency of the
Lender selling a Participation, a Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
borrower. A Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is determined by the Adviser to be
creditworthy.
22
<PAGE>
When a Fund purchases Assignments from Lenders it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by a Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender. Because there is no liquid market for such securities, the
Funds anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
LOWER RATED AND UNRATED DEBT SECURITIES
The Emerging Markets Debt, High Yield & Total Return and Worldwide High
Income Funds may invest in lower rated or unrated debt securities, commonly
referred to as "junk bonds." In addition, the emerging markets country debt
securities in which such Funds may invest are subject to additional risks and
will not be required to meet a minimum rating standard and may not be rated.
Fixed income securities are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations (credit risk) and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated securities are more likely to
react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. The market values of fixed income securities tend to vary
inversely with the level of interest rates. Yields and market values of lower
rated and unrated debt securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Fluctuations in the value of a Fund's investments will be reflected in the
Fund's net asset value per share. The Adviser considers both credit risk and
market risk in making investment decisions for the Funds. Investors should
carefully consider the relative risks of investing in lower rated and unrated
debt securities and understand that such securities are not generally meant for
short-term investing.
Adverse economic developments may disrupt the market for U.S. corporate
lower rated and unrated debt securities and for international and emerging
markets country debt securities. Such disruptions may severely affect the
ability of issuers, especially highly leveraged issuers, to service their debt
obligations or to repay their obligations upon maturity. In addition, the
secondary market for lower rated and unrated debt securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities. As a result, the Adviser
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect a
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated; instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to
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service its foreign currency-denominated debt. In general, the ratings of debt
securities or obligations issued by a non-U.S. public or private entity will not
be higher than the rating of the currency or the foreign currency debt of the
central government of the country in which the issuer is located, regardless of
the intrinsic creditworthiness of the issuer. In addition, there may be limited
trading markets for debt securities of issuers located in emerging markets
countries.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, a Fund may have
to replace the security with a lower yielding security, resulting in a decreased
return for investors. If a Fund experiences unexpected net redemptions, it may
be forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Fund's investment portfolio and increasing the
exposure of the Fund to the risks of lower rated and unrated debt securities.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Funds include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
including high-grade commercial paper, repurchase agreements and bank
obligations, such as bankers' acceptances and certificates of deposit (including
Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, a Fund may be required to bear the expenses of
registration. No Fund may invest more than 15% of its net assets in illiquid
securities, which generally include securities that are restricted from sale to
the public without registration under the Securities Act of 1933, as amended,
(the "1933 Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, the
availability of reliable pricing information, the number of dealers making
quotes or making a market in the security and the number of potential purchasers
in the market for the security. To the extent that qualified institutional
buyers become uninterested in buying 144A Securities, such securities in a
Fund's portfolio could increase the Fund's level of illiquidity. Notwithstanding
the foregoing, neither the Global Fixed Income Fund nor the Worldwide High
Income Fund may invest more than 10% of its total assets in securities subject
to legal or contractual restrictions on resale. Notwithstanding the foregoing,
the High Yield & Total Return Fund may not invest more than 10% of its total
assets in securities subject to legal or contractual restrictions on resale
except that it may invest up to 20% of its total assets in 144A Securities.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a repurchase agreement, a Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term for these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by a Fund to the seller. The Funds always receive securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, a Fund might incur a
loss. If
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bankruptcy proceedings are commenced with respect to the seller, the Fund's
realization upon the collateral may be delayed or limited. Repurchase agreements
with durations (or maturities) over seven days in length are considered to be
illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Emerging Markets Debt and Worldwide High Income Funds may enter into
reverse repurchase agreements with brokers, dealers, banks or other financial
institutions that meet the credit guidelines set by the Company's Board of
Directors. In a reverse repurchase agreement, a Fund sells a security and agrees
to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. It may also be viewed as
the borrowing of money by a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A Fund
will enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with an appropriate custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a Fund's net asset value. In the event that
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
SHORT SALES
The Emerging Markets Debt and Worldwide High Income Funds may from time to
time sell securities short without limitation. A short sale is a transaction in
which a Fund sells securities it owns or has the right to acquire at no added
cost (i.e., "against the box") or it does not own (but has borrowed) in
anticipation of a decline in the market price of the securities. When a Fund
makes a short sale of borrowed securities, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, a Fund will need to arrange
through a broker to borrow the securities and, in so doing, the Fund will become
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Funds may have to pay a premium
to borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.
Each Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or liquid assets. In addition, each Fund will place in a
segregated account with an appropriate custodian an amount of cash or liquid
assets equal to the difference, if any, between (1) the market value of the
securities sold, and (2) any cash or liquid securities deposited as collateral
with the broker in connection with the short sale (not including the proceeds of
the short sale). Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is a current policy of each of the Funds,
other than the Emerging Markets Debt Fund, not to enter into when-issued
commitments or delayed delivery securities exceeding, in the aggregate, 15% of
the Fund's net assets other than the obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled
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to receive the par value of the security. While interest payments are not made
on such securities, holders of such securities are deemed to have received
annually "phantom income." Because a Fund will distribute its "phantom income"
to shareholders, to the extent that shareholders elect to receive dividends in
cash rather than reinvesting such dividends in additional shares, the Fund will
have fewer assets with which to purchase income producing securities. A Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
DERIVATIVE INSTRUMENTS
The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured investments and structured notes,
caps, floors, collars and swaps. Additionally, the Funds may invest in other
derivative instruments that are developed over time if their use would be
consistent with the objectives of the Funds. Each Fund, other than the Emerging
Markets Debt Fund (as described below), will limit its use of the foregoing
derivative instruments for non-hedging purposes to 33 1/3% of its total assets
measured by the aggregate notional amount of outstanding derivative instruments.
In addition, no Fund, other than the Emerging Markets Debt Fund, will enter into
futures contracts and options on futures contracts to the extent that the
notional value of its outstanding obligations to purchase securities under such
contracts would exceed 20% of its total assets. The Emerging Markets Debt Fund
will limit its use of the foregoing derivative instruments to 50% of its total
assets measured by the aggregate notional amount of outstanding derivative
instruments, provided that no more than 33 1/3% of its total assets are
invested, for non-hedging purposes, in derivatives other than futures and
options on futures. The Funds' investments in forward foreign currency contracts
and derivatives used for hedging purposes are not subject to the limits
described above.
The Funds may use derivative instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by a
Fund for hedging purposes and in other circumstances when a Fund's Adviser
believes it advantageous to do so consistent with the Fund's investment
objective. The Funds will not, however, use derivatives in a manner that creates
leverage, except to the extent that the use of leverage is expressly permitted
by a particular Fund's investment policies, and then only in a manner consistent
with such policies.
Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Funds may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by only entering into
futures contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
OPTIONS TRANSACTIONS. The Funds may seek to increase their returns or may
hedge their portfolio investments through options transactions with respect to
(i) securities, instruments, indices or baskets thereof in which such Funds may
invest and (ii) foreign currencies. Purchasing a put option gives a Fund the
right to sell a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the option. Purchasing
a call option gives a Fund the right to purchase a specified security, currency
or basket of securities or currencies at the exercise price until the expiration
of the option.
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Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. A Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price no
higher than the price at which the underlying instrument was sold pursuant to a
short option position.
By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by a
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED INVESTMENTS. The Emerging Markets Debt and Worldwide High Income
Funds may invest a portion of their assets in entities organized and operated
solely for the purpose of restructuring the investment characteristics of
sovereign debt obligations. This type of restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, of specified
instruments (such as commercial bank loans or Brady Bonds) and the issuance by
that entity of one or more classes of securities ("Structured Securities")
backed by, or representing interests in, the underlying instruments. The cash
flow on the underlying instruments may be apportioned among the newly issued
Structured Securities to create securities with different investment
characteristics, such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to Structured
Securities is dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in which each Fund
anticipates it will invest typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments. Each
Fund is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently is no
active trading market for Structured Securities.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The
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payment streams are calculated by reference to a specific security, instrument,
basket thereof or index and an agreed upon notional amount. The relevant indices
include but are not limited to, currencies, fixed interest rates, prices and
total return on interest rate indices, fixed income indices, stock indices and
commodity indices (as well as amounts derived from arithmetic operations on
these indices). For example, a Fund may agree to swap the return generated by a
fixed income index for the return generated by a second fixed income index. The
currency swaps in which the Funds may enter will generally involve an agreement
to pay interest streams in one currency based on a specified index in exchange
for receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. A Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of 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 market
values, interest rates and currency exchange rates, the investment performance
of the Funds would be less favorable than it would have been if this investment
technique were not used.
YEAR 2000 RISKS
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Adviser is
taking steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact upon the Funds. In addition, the Year
2000 Problem may adversely affect the issuers of securities in which the Funds
may invest which, in turn, may adversely affect the net asset value of the
Funds.
INVESTMENT LIMITATIONS
The High Yield & Total Return Fund is a diversified investment company under
the 1940 Act, and therefore, with respect to 75% of its total assets: (a) such
Fund may not invest more than 5% of its total assets in the securities of any
one issuer, except obligations of the U.S. Government, its agencies and
instrumentalities and (b) such Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The Emerging Markets Debt, Global Fixed
Income and Worldwide High Income Funds are non-diversified investment
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companies under the 1940 Act, which means that each such Fund is not limited by
the 1940 Act in the proportion of its total assets that may be invested in the
obligations of a single issuer. Thus, the Emerging Markets Debt, Global Fixed
Income and Worldwide High Income Funds may invest a greater proportion of their
total assets in the securities of a smaller number of issuers and, as a result,
will be subject to greater risks resulting from such practices than a portfolio
which is diversified. The Emerging Markets Debt, Global Fixed Income and
Worldwide High Income Funds, however, intend to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company.
Each Fund also operates under certain investment restrictions that are
deemed fundamental policies and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each Fund
operates under certain non-fundamental investment limitations as described in
the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Funds.
The Adviser provides investment advice and portfolio management services
pursuant to an advisory agreement (the "Advisory Agreement") and subject to the
supervision of the Company's Board of Directors, makes the Funds' investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Funds' investments. The Advisory Agreement also provides that the
Adviser may appoint sub-advisers to perform these portfolio management
responsibilities. See "Investment Sub-Adviser" below. The Adviser is entitled to
receive an aggregate advisory fee computed daily and paid monthly at the
following annual rates for each Fund:
<TABLE>
<S> <C>
Emerging Markets Debt Fund............................................ 1.25%
Global Fixed Income Fund.............................................. 0.75%
High Yield & Total Return Fund........................................ 0.75%
Worldwide High Income Fund............................................ 0.75%
</TABLE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of the Funds' other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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; asset management;
trading of futures, options, foreign exchange commodities and swaps (including
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending; and credit services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Funds. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Funds' investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Funds' investments.
30
<PAGE>
The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If a
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
EMERGING MARKETS DEBT FUND -- PAUL GHAFFARI. Paul Ghaffari is a Managing
Director of Morgan Stanley & Co. Incorporated ("Morgan Stanley") and the
Sub-Adviser. He joined the Sub-Adviser in June 1993 as a Vice President and
Portfolio Manager for the Morgan Stanley Emerging Markets Debt Fund (a
closed-end investment company). Prior to joining the Sub-Adviser, Mr. Ghaffari
was a Vice President in the Fixed Income Division of the Emerging Markets Sales
and Trading Department at Morgan Stanley. From 1983 to 1992, he worked in LDC
Sales and Trading Department and the Mortgage-Backed Securities Department at
J.P. Morgan & Co. Inc. and worked in the Treasury Department at the Morgan
Guaranty Trust Co. He holds a B.A. in International Relations from Pomona
College and an M.S. in Foreign Service from Georgetown University. Mr. Ghaffari
will have primary responsibility for managing the Portfolio's assets upon the
Fund's commencement of operations.
GLOBAL FIXED INCOME FUND -- J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL F.
O'BRIEN AND RAM WILLNER. J. David Germany shares primary responsibility for
managing the Fund's assets. He joined the Sub-Adviser in 1996 and has been a
portfolio manager with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP
("MAS") since 1991. He assumed responsibility for the Global Fixed Income and
International Fixed Income Portfolios of the MAS-advised MAS Funds, including
the Fund, in 1993 and the MAS Funds' Multi-Asset-Class Portfolio in 1994. He
holds an A.B. degree (Valedictorian) from Princeton University and a Ph.D. in
Economics from the Massachusetts Institute of Technology. Michael B. Kushma, a
Principal of Morgan Stanley and the Sub-Adviser, joined the firm in 1987. He
shares primary responsibility for managing the Fund's assets. He was a member of
Morgan Stanley's global fixed income strategy group in the fixed income division
from 1987-1995 where he became the division's senior government bond strategist.
He joined the Sub-Adviser in 1995 where he took responsibility for the global
fixed income portfolios. Mr. Kushma has shared primary responsibility for
managing the Fund's assets since 1995. Mr. Kushma received an A.B. in economics
from Princeton University in 1979, an M. Sc. in economics from the London School
of Economics in 1981 and an M.Phil. in economics from Columbia University in
1983. Paul F. O'Brien has shared primary responsibility for managing the Fund's
assets since 1996. He joined the Sub-Adviser and MAS in 1996. He was head of
European Economics from 1993 through 1995 for JP Morgan. He assumed
responsibility for the MAS-advised MAS Funds' Global Fixed Income and
International Fixed Income Portfolios in 1996. Mr. O'Brien holds a B.S. degree
from the Massachusetts Institute of Technology and a Ph.D. in Economics from the
University of Minnesota. Ram Willner, a Principal of Morgan Stanley, has been a
portfolio manager with MAS since April 1, 1998. From 1994 to 1998 he was a
Market Strategist/Risk Control Manager and Director of International Bond
Research with Pacific Investment Management Company and from 1992 to 1994 he was
a Senior Quantitative Analyst for Sanford C. Bernstein & Co. Prior to that he
was a Vice President of Citibank, N.A. Mr. Willner holds a B.A. from Brandeis
University, an M.S.I.A. from Carnegie-Mellon University and a D.B.A. from
Harvard University. J. David Germany, Michael B. Kushma
31
<PAGE>
and Paul F. O'Brien have had primary responsibility for managing the Global
Fixed Income Portfolio since September 1997. Ram Willner has shared primary
responsibility for managing the Global Fixed Income Fund since April 1, 1998.
HIGH YIELD & TOTAL RETURN FUND -- ROBERT ANGEVINE, THOMAS L. BENNETT AND
STEPHEN F. ESSER. Robert Angevine is a Principal of Morgan Stanley and the
Sub-Adviser and the portfolio manager for high yield investments. He has shared
primary management responsibility for the Fund since it commenced operations.
Mr. Angevine also manages high yield assets for one of the largest corporate
pension funds in the country. His other experience includes international
treasury operations at a major pharmaceutical company and commercial banking.
Mr. Angevine received an M.B.A. from Fairleigh Dickinson University and a B.A.
in Economics from Lafayette College. Thomas L. Bennett has shared responsibility
for managing the Fund's assets since 1996. He joined the Sub-Adviser in 1996 and
has been a portfolio manager with MAS since 1984. Mr. Bennett assumed
responsibility for the MAS-advised MAS Funds' Fixed Income Portfolio in 1984,
the Domestic Fixed Income Portfolio in 1987, the High Yield Portfolio in 1985,
the Fixed Income Portfolio II in 1990, the Special Purpose Fixed Income and
Balanced Portfolios in 1992 and the Multi-Asset-Class Portfolio in 1994. Mr.
Bennett also is the Chairman of the MAS Funds and has a B.S. degree (Chemistry)
and an M.B.A. from the University of Cincinnati. Stephen F. Esser shares primary
responsibility for managing the Fund's assets. He joined the Sub-Adviser in 1996
and has been a portfolio manager with MAS since 1988. He assumed responsibility
for the MAS-advised MAS Funds' High Yield Portfolio in 1989. Mr. Esser is a
member of the New York Society of Security Analysts and has a B.S. degree (Summa
Cum Laude; Phi Beta Kappa) from the University of Delaware. Mr. Esser has shared
responsibility for managing the Fund's assets since 1996.
WORLDWIDE HIGH INCOME FUND -- ROBERT ANGEVINE AND PAUL GHAFFARI. Information
about Messrs. Angevine and Ghaffari is included under Emerging Markets Debt Fund
and High Yield Fund, respectively, above. Messrs. Angevine and Ghaffari have
shared primary management responsibility for the Fund since it commenced
operations.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and transfer agent
services. For its services under the Administration Agreement, the Company pays
the Administrator a monthly fee which on an annual basis equals 0.25% of the
average daily net assets of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Adviser, Administrator and Distributor.
The officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
32
<PAGE>
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds. The Company may in the future offer one or more classes of
shares for Funds that may have sales charges or other distribution charges or a
combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from each Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to Class C
shares, the Distributor expects to reallocate substantially all of its fee to
such Participating Dealers. The Distributor may, in its discretion, voluntarily
waive from time to time all or any portion of its distribution fee and the
Distributor is free to make additional payments out of its own assets to promote
the sale of Fund shares. Class A shares, Class B shares and Class C shares are
subject to a service fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of a Fund. In addition to
such payments, the Adviser or its affiliates may pay certain expenses associated
with activities which might be construed to be financing the sale of the Funds'
shares including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services). Any payments by the Adviser or its affiliates will be made directly
from their assets and will not be made from the assets of the Company or by the
assessment of a charge on shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services (defined below). The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. Each Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company 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 are also
33
<PAGE>
offered through members of the NASD who are acting as securities dealers
("dealers") and NASD members or eligible non-NASD members who are acting as
brokers or agents for investors ("brokers"). The term "dealers" and "brokers"
are sometimes referred to herein as "Participating Dealers."
As of the date of this Prospectus, the Emerging Markets Debt Fund is not
offering shares.
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. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Funds available for sale may be purchased on any business day
through Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the Funds' shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly-owned subsidiary of Van
Kampen. When purchasing shares of the Company, investors must specify the Fund
and 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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable 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 per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by Participating Dealers after the close of the New York Stock Exchange
(the "NYSE") are priced based on the net asset value per share calculated after
the next day's close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including higher distribution fees) resulting from
such sales arrangement, (ii) generally, each class has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan to which its
distribution fee or service fee is paid, (iii) certain shares are subject to a
conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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 higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company'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.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in a Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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 "Fund Expenses" 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
34
<PAGE>
or purchases shares at net asset value, as described herein under "Purchase of
Shares--Class A Shares." For these reasons, 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 an 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 most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
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. Investors should understand that the purpose and function of the CDSC
and ongoing distribution fee with respect to Class B shares and Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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 Participating 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 Company. 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 Company. 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 business
nature. In some instances, additional compensation or promotional incentives may
be offered to Participating Dealers that have sold or may sell significant
amounts of shares during specified periods of time. Such fees paid for such
services and activities with respect to a Fund will not exceed in the aggregate
1.25% of the average total daily net assets of the Fund on an annual basis. All
of the foregoing payments are made by the Distributor out of its own assets.
These programs will not change the price an investor will pay for shares or the
amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
35
<PAGE>
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED 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 initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Funds impose a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers,
dealers or financial intermediaries 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, plus 0.50% on the excess over $3 million.
See "Purchase of Shares -- Purchase of Class B Shares" and "-- Purchase of
Class C Shares" for additional information with respect to contingent
deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating 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 Company. 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 Participating Dealers must notify the Company 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 Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
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
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
("Asset Management") and distributed by the Distributor as determined from time
to time by the Company's Board of Directors.
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 a 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.
36
<PAGE>
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
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charges 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 form 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company 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 Company 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 Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating 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 a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value per share without an initial sales charge, upon written assurance
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the Fund by:
(1) Current or retired trustees/directors of funds advised by the Adviser or
Asset Management and such persons' families and their beneficial accounts.
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(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 investments 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 Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans
which invest in multiple fund families through national wirehouse alliance
programs subject to certain minimum size and operational requirements.
Directors and other fiduciaries should refer to the Statement of Additional
Information for further detail with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary 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 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. Section 403(b) and similar accounts for which Van
Kampen Trust Company ("Van Kampen Trust") 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. A
commission will be paid to dealers who initiate and are responsible for
such purchases within a rolling twelve month period as follows: 1.00% on
sales up to $2 million, plus 0.80% on the next $1 million, plus 0.50% on
the next $47 million, plus 0.25% on the excess over $50 million
(9) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Funds 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
Funds and other 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 participant's account in connection with this privilege
will be subject to a contingent deferred sales charge of one percent 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.
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<PAGE>
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Funds at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------------------------------------ ----------------
<S> <C>
First....................................................... 4.00%
Second...................................................... 4.00%
Third....................................................... 3.00%
Fourth...................................................... 2.50%
Fifth....................................................... 1.50%
Thereafter.................................................. None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan as described
under "Management of the Company -- Distributor" above. Additionally, the
Distributor may pay additional promotional incentives, in the form of cash or
other compensation, to authorized dealers that sell Class B shares of the Funds.
The combination of the CDSC and the distribution fee facilitates the ability of
the Company to sell the Class B shares without a sales charge being deducted at
the time of purchase.
39
<PAGE>
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will generally make payments to the Participating Dealers that handle the
purchases of such shares at the rate of up to 1.00% of the purchase price of
such shares at the time of purchase and expects to pay to Participating Dealers
most of its distribution fee, with respect to such shares, under the Rule 12b-1
Plan for such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC.
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum amount of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (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 Company to liquidate a
shareholder's account as described under "Redemption of Shares." A shareholder,
or their representative, must notify the Company's Transfer Agent prior to the
time of redemption if such circumstances exist and the shareholder is eligible
for this waiver. The shareholder is responsible for providing sufficient
documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Funds without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of a Fund at net asset value per share with no
initial sales charge. A Class C shareholder who has redeemed shares of a
Participating Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of a Fund with credit given for any CDSC paid upon
such redemption. The reinstatement privilege as to any specific Class A, Class B
or Class C shares must be exercised within 180 days of the redemption. The
Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is also offered to participants
in those eligible retirement plans held or administered by Van Kampen Trust for
repayment of principal (and interest) on their borrowings on such plans. See the
Statement of Additional Information for further discussion of waiver provisions.
40
<PAGE>
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra costs to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Investor Services. Investor Services acts as transfer agent
for the Company and performs bookkeeping, data processing and administration
services related to the maintenance of shareholder accounts. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from Investor Services showing any reinvestments
of dividends and capital gains distributions and any other activity in the
account since the preceding statement. Such shareholders also will receive
separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Funds. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder. Both accounts must also be of the same type, either
non-retirement or retirement. Any two non-retirement accounts can be used. 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 the 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 portfolio at its net asset value as of the payable date of the
distribution only if shares of such selected portfolio have been registered for
sale in the investor's state and are currently available for sale.
41
<PAGE>
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust 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.
EXCHANGE PRIVILEGE. Shares of the Funds may be exchanged for shares of the
same class of another Participating Fund based on the net asset value per share
of each fund on the date of exchange, subject to certain limitations. Before
effecting an exchange, shareholders in the Company should obtain and read a
current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund 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.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchange 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 not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take place at the relative net asset value
per share of the shares next determined after receipt of such request with
adjustment for any additional sales charge. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment. If an
account has multiple owners, Investor Services may rely on the instructions of
any one owner.
SYSTEMATIC 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.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if
42
<PAGE>
necessary. Each withdrawal constitutes a redemption of shares on which taxable
gain or loss will be recognized. The plan holder may arrange for monthly,
quarterly, semi-annual or annual checks in any amount not less than $25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company 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 purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
www.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively "VK"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of instructions communicated through the
internet. If reasonable procedures are employed, neither VK nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Company c/o Van
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Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, by placing the redemption request through a Participating Dealer or
by calling the Company. See "Purchase of Shares" for a discussion of applicable
CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would 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. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received, less any applicable CDSC, by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 282-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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, Investor Services may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the
44
<PAGE>
shareholder's bank account of record. This privilege is not available if the
address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemption following the death or disability of holders of Class B shares and
Class C shares. 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C
shares 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 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 death or disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK") and the Company 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 VK nor the Company will be liable for following instructions which it
reasonably believes to be genuine. VK and the Company may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
45
<PAGE>
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently, 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the current
bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the Sub-Adviser select the brokers or dealers that will
execute the purchases and sales of investment securities for each of the Funds.
The Adviser and the Sub-Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the Funds to their clients or
who act as agents in the purchase of shares of the Funds for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Adviser and Sub-Adviser or broker affiliates of
Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Emerging Markets Debt Fund, which has not
commenced investment operations, anticipates that its annual portfolio turnover
rate will not exceed 100% under normal circumstances. Market conditions could
result in portfolio activity at a greater or lesser rate than anticipated. For
the annual turnover rates for the other Funds, see "Financial Highlights" above.
High portfolio turnover (i.e. 100% or more) involves correspondingly greater
transaction costs which will be borne directly by the Fund. In addition, high
portfolio turnover may result in more capital gains which would be taxable to
the shareholders of the Fund.
46
<PAGE>
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. In
addition, from time to time the Company may advertise "yield" for each of the
Funds. THESE FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an investment in a
Fund would have earned over a specified period of time (such as one, three, five
or ten years) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period. Total return does not
take into account any federal or state income tax consequences to shareholders
subject to tax. The "yield" of a Fund refers to the income generated by an
investment in the Fund over a one-month or 30-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that 30-day period is assumed to be generated each 30-day period for twelve
periods, and is shown as a percentage of the investment. The Company may also
include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc. and Morgan Stanley Capital International.
PERFORMANCE OF INVESTMENT SUB-ADVISER -- EMERGING MARKETS DEBT FUND
The Sub-Adviser manages a portfolio of Morgan Stanley Institutional Fund,
Inc. ("MSIF") which served as the model for the Emerging Markets Debt Fund. The
portfolio of MSIF (the "MSIF Portfolio") has substantially the same investment
objective, policies and strategies as the Emerging Markets Debt Fund. In
addition, the Adviser and Sub-Adviser intend the Emerging Markets Debt Fund and
the corresponding MSIF Portfolio to be managed by the same personnel and to
continue to have closely similar investment strategies, techniques and
characteristics. Past investment performance of the MSIF Portfolio, as shown in
the table below, may be relevant to your consideration of investment in the
Emerging Markets Debt Fund. The investment performance of the MSIF Portfolio is
not necessarily indicative of future performance of the Emerging Markets Debt
Fund. Also, the operating expenses of the Emerging Markets Debt Fund will be
different from, and may be higher than, the operating expenses of the MSIF
Portfolio. The investment performance of the MSIF Portfolio is provided merely
to indicate the experience of the Sub-Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the Emerging Markets Debt Fund's projected operating
expenses and (i) with respect to the Class A shares, to take into account a
maximum 4.75% initial sales charge applicable to purchases of Class A shares of
the Emerging Markets Debt Fund; (ii) with respect to Class B shares, to take
into account the applicable CDSC that is imposed if Class B shares of the
Emerging Markets Debt Fund are redeemed within the year of their purchase
indicated; and (iii) with respect to the Class C shares, to take into account a
1.00% CDSC that is imposed if Class C shares of the Emerging Markets Debt Fund
are redeemed within one year of their purchase. The data set forth below under
the heading "Return Without Sales Charge" is adjusted to reflect the Emerging
Markets Debt Fund's projected operating expenses and not adjusted to take into
account such sales charges.
TOTAL RETURN FOR THE MSIF PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM EMERGING MARKETS DEBT FUND)
FOR THE PERIOD ENDED JUNE 30, 1998
(ADJUSTED TO REFLECT PROJECTED OPERATING EXPENSES AND, WHERE INDICATED, THE
SALES CHARGES OF THE EMERGING MARKETS DEBT FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR 3 YEAR INCEPTION (1)
- ----------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Class A.............................................. (8.27 )% 22.92 % 13.74%
Class B.............................................. (8.45 )% 23.79 % 14.52%
Class C.............................................. (5.45 )% 24.44 % 14.52%
RETURN WITHOUT
SALES CHARGE
- -----------------------------------------------------
Class A.............................................. (3.70 )% 24.93 % 15.01%
Class B.............................................. (4.45 )% 24.44 % 14.52%
Class C.............................................. (4.45 )% 24.44 % 14.52%
</TABLE>
- --------------
(1) Commenced operations on February 1, 1994.
47
<PAGE>
The past performance of the MSIF Portfolio is no guarantee of the future
performance of the Emerging Markets Debt Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Funds, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
The Emerging Markets Debt Fund expects to distribute substantially all of
its net investment income in the form of annual dividends. Each of the Global
Fixed Income, High Yield & Total Return and Worldwide High Income Funds expects
to distribute net investment income in the form of monthly dividends. Each of
the Funds expects to distribute net realized gains, if any, annually.
Confirmations of the purchase of shares of the Fund through the automatic
reinvestment of income dividends and capital gains distributions will be
provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of 1934,
as amended, on the next quarterly client statement following such purchase of
shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of a Fund
will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole.
Accordingly, net long-term and short-term capital gains, net income and
operating expenses will be determined separately for each Fund.
Each Fund has elected and qualified, and intends to continue to qualify each
year, for the special tax treatment afforded "regulated investment companies"
("RICs") under Subchapter M of the Code so that it will be relieved of federal
income tax on that part of its net investment income and net capital gain (the
excess of net long-term capital gain over net short-term capital loss, less any
available loss carryforward) which is distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held a Fund's shares. Capital gain dividends
48
<PAGE>
are not eligible for the corporate dividends-received deduction. Each Fund will
make annual reports to shareholders of the federal income tax status of all
distributions. See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gain dividends).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to continue to qualify as a RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by a Fund in October, November or
December that are payable as of a record date in such month and are paid at any
time during January of the following year are treated as having been paid by the
Fund and received by the shareholders on December 31st of the year in which they
are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Funds.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%. A special 28% tax rate may apply to
a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended June 30, 1998.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992,
under the name Morgan Stanley Fund, Inc. On July 14, 1998, the Company adopted
its current name. The Amended Articles of Incorporation currently permit the
Company to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Funds have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act. Any person or organization owning 25% or
more of the outstanding shares of a Fund may be presumed to "control" (as that
term is defined in the 1940 Act) such Fund. As of September 3, 1998, MCPF&S,
FBO, Its customers, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, was
presumed to "control" the High Yield & Total Return Fund based solely on its
ownership of more than 25% of the outstanding voting shares of both Class A and
Class B of such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
49
<PAGE>
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Street, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
50
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A-1
<PAGE>
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
- --------------------------------------------------------------------------------
VAN KAMPEN
EMERGING MARKETS DEBT FUND
GLOBAL FIXED INCOME FUND
HIGH YIELD & TOTAL RETURN FUND
WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN AGGRESSIVE EQUITY FUND
VAN KAMPEN AMERICAN VALUE FUND
VAN KAMPEN EQUITY GROWTH FUND
VAN KAMPEN MID CAP GROWTH FUND
VAN KAMPEN U.S. REAL ESTATE FUND
VAN KAMPEN VALUE FUND
PORTFOLIOS OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of six portfolios listed above (each a "Fund," and together,
the "Funds").
The Funds are designed to make available to retail investors the expertise
of Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator") and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser ("MSAM" or a "Sub-
Adviser"), Miller Anderson & Sherrerd, LLP as a sub-adviser ("MAS" or a
"Sub-Adviser") and Van Kampen Funds Inc. as the Funds' distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers"). As of the date
of this Prospectus, the Van Kampen Mid Cap Growth Fund is not offering shares.
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above. The Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 5
Financial Highlights....................................................................................... 8
Investment Objectives and Policies......................................................................... 15
Additional Investment Information.......................................................................... 21
Investment Limitations..................................................................................... 28
Management of the Company.................................................................................. 29
Purchase of Shares......................................................................................... 33
Shareholder Services....................................................................................... 40
Redemption of Shares....................................................................................... 43
Valuation of Shares........................................................................................ 45
Portfolio Transactions..................................................................................... 45
Performance Information.................................................................................... 46
Dividends and Distributions................................................................................ 47
Taxes...................................................................................................... 47
General Information........................................................................................ 48
Appendix A -- Description of Corporate Bond Ratings........................................................ A-1
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUNDS 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 FUNDS TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-three portfolios which are designed
to offer investors a range of investment choices with Van Kampen Investment
Advisory Corp. (the "Adviser") providing services as adviser and administrator
and its affiliates, Morgan Stanley Asset Management Inc. ("MSAM" or a
"Sub-Adviser") and Miller Anderson & Sherrerd, LLP ("MAS" or a "Sub-Adviser"),
providing services as sub-advisers. Van Kampen Funds Inc. (the "Distributor")
provides services as Distributor. MAS serves as the Sub-Adviser for the Mid Cap
Growth Fund and the Value Fund. MSAM serves as the Sub-Adviser for all of the
other Funds.
This Prospectus describes Class A, Class B and Class C shares of the six
portfolios shown below. For ease of reference, the words "Van Kampen," which
begin the name of each portfolio are not used throughout this Prospectus. The
investment objective of each Fund is as follows:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in equity
securities of small- to medium-sized corporations. Effective August 31,
1998, the American Value Fund suspended the continuous offering of its
shares to new investors.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.
- The MID CAP GROWTH FUND seeks to achieve long-term growth by investing
primarily in common stocks and other equity securities of smaller and
medium size companies which are deemed by the Adviser to offer long-term
growth potential. As of the date of this Prospectus, the Mid Cap Growth
Fund is not offering shares.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
There can be no assurance a Fund will achieve its investment objective.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
common stocks, which are subject to market risks that may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect a
Fund's net asset value. The Funds, and in particular, the Aggressive Equity,
American Value, Mid Cap Growth and Value Funds, invest in small- to medium-sized
companies, which are more vulnerable to financial risks and other risks than
larger companies, and therefore may involve a higher degree of risk and price
volatility than investments in the securities of larger corporations. Each Fund
described herein may invest in securities that are neither listed on stock
exchanges nor traded over-the-counter, including private placement securities
and restricted securities. Such securities may be less liquid than publicly
traded securities. The Funds may invest in securities of foreign issuers which
are subject to certain risks not typically associated with domestic securities.
See "Additional Investment Information -- Foreign Investment" for more
information. Some Funds may invest in forward foreign currency exchange
contracts, and may invest in foreign currency exchange futures and options. In
addition, the Funds may invest in derivatives, which include options, futures
and options on futures and swaps, and each Fund may invest in repurchase
agreements, borrow money, lend its portfolio securities and purchase securities
on a when-issued or delayed delivery basis. Certain Funds may invest in
securities which are convertible upon various terms and conditions into equity
securities, borrow for purposes of leverage, invest in reverse repurchase
agreements and engage in short selling.
3
<PAGE>
Because the U.S. Real Estate Fund invests primarily in the securities of
companies principally engaged in the real estate industry, its investments may
be subject to the risks associated with real estate. Because it is expected that
the U.S. Real Estate Fund will invest a substantial portion of its assets in
real estate investment trusts ("REITs"), the U.S. Real Estate Fund may also be
subject to certain risks and costs associated with the direct investments of
REITs.
Because the U.S. Real Estate Fund and Aggressive Equity Fund are
non-diversified portfolios, each of these Funds may invest a greater proportion
of its assets in the securities of a smaller number of issuers and, as a result,
will be subject to a greater risk resulting from such practice than a portfolio
which is diversified.
Each Fund's share price and investment return fluctuate, and a shareholder's
investment when redeemed may be worth more or less than his original cost. Each
of these investment strategies involves specific risks which are described under
"Investment Objectives and Policies" and "Additional Investment Information"
herein and under "Investment Objectives and Policies" in the Statement of
Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value per share plus a maximum initial sales
charge of 5.75%, which initial sales charge may be reduced on certain larger
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Funds are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are also
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of a Fund,
except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of a Fund, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
4
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
SHAREHOLDER TRANSACTION EXPENSES FUND VALUE FUND FUND FUND FUND VALUE FUND
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A..................... 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1)
Class B..................... None None None None None None
Class C..................... None None None None None None
Maximum Deferred Sales Load (as
a percentage of the lesser of
initial purchase price or
current market value)
Class A
For Purchases up to
$999,999................ None None None None None None
For Purchases of
$1,000,000 or more...... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B..................... 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C..................... 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Redemption Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Exchange Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. See "Purchase of Shares."
(2) Purchases of Class A shares of the Funds which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Participating Funds (as defined under "Purchase of Shares -- Quantity
Discounts"), aggregate to $1 million or more are not subject to an initial
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Certain other
purchases are not subject to an initial sales charge. See "Purchase of
Shares."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds are subject to a maximum CDSC of 5.00% which decreases in steps to
0.00% after five years. See "Purchase of Shares."
(4) Purchases of Class C shares of the Funds are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. See "Purchase of Shares."
5
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES AGGRESSIVE EQUITY MID CAP U.S. REAL
(AS A PERCENTAGE OF AVERAGE DAILY EQUITY AMERICAN GROWTH GROWTH ESTATE
NET ASSETS) FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after fee
waiver) (5)
Class A........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
Class B........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
Class C........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
12b-1 Distribution and Service Fees
Class A (6).................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Class B (6).................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Class C (6).................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement) (5)
Class A........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Class B........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Class C........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Total Operating Expenses (after
expense reimbursement and/or fee
waiver) (5)
Class A........................ 1.50% 1.50% 1.50% 1.40% 1.55% 1.45%
Class B........................ 2.25% 2.25% 2.25% 2.15% 2.30% 2.20%
Class C........................ 2.25% 2.25% 2.25% 2.15% 2.30% 2.20%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive a portion of its advisory fees and/or to
reimburse a portion of expenses of the Funds listed above, if necessary, if
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, would exceed the percentages set forth in the table above.
The following table sets forth for each Fund investment advisory fees and
expected total operating expenses absent fee waivers and/or expense
reimbursements. The Adviser in its discretion may terminate voluntary fee
waivers and/or reimbursements at any time. Absent the waiver of fees or
reimbursement of expenses, the amounts in the examples below would be
greater.
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(All Classes)............. 0.90% 0.85% 0.80% 0.75% 1.00% 0.80%
Total Operating Expenses
Class A................... 1.71% 1.58% 4.06% 1.48% 2.09% 1.60%
Class B................... 2.47% 2.33% 4.81% 2.23% 2.84% 2.35%
Class C................... 2.47% 2.33% 4.81% 2.23% 2.83% 2.35%
</TABLE>
For further information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds will bear directly or
indirectly. The expenses and fees for the Aggressive Equity, American Value,
U.S. Real Estate and Value Funds are based on actual figures for the fiscal year
ended June 30, 1998. The expenses and fees for the Equity Growth Fund are based
on advisory agreements, 12b-1 plans and estimates of other expenses for the
current fiscal year because the Fund commenced investment operations on May 29,
1998. The expenses and fees for the Mid Cap Growth Fund are based on advisory
agreements, 12b-1 plans and estimates of other expenses for the current fiscal
year because such Fund had not commenced investment operations as of the date of
this Prospectus.
6
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of each Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of each Fund, which have a CDSC, but
no initial sales charge and (iii) Class C shares of each Fund, which have a
CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
1 Year.................... $ 72(1) $ 72(1) $ 72 $ 71(1) $ 72(1) $ 71(1)
3 Years................... 102 102 102 99 104 101
5 Years................... 135 135 135 * 137 132
10 Years.................. 226 226 226 * 231 221
Class B shares
(Assuming complete redemption
at end of period)
1 Year.................... 73 73 73 72 73 72
3 Years................... 100 100 100 97 102 99
5 Years................... 135 135 135 * 138 133
10 Years (2).............. 239 239 237 * 244 234
(Assuming no redemption)
1 Year.................... 23 23 23 22 23 22
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 133
10 Years (2).............. 239 239 237 * 244 234
Class C shares
(Assuming complete redemption
immediately prior to the end
of period)
1 Year.................... 33 33 33 32 33 32
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 118
10 Years.................. 258 258 258 * 264 253
(Assuming no redemption)
1 Year.................... 23 23 23 22 23 22
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 118
10 Years.................. 258 258 258 * 264 253
</TABLE>
- ------------------
* Because the Mid Cap Growth Fund had not commenced investment operations as
of the date of this Prospectus, the Company has not projected expenses
beyond the three-year period shown. Because the Equity Growth recently
commenced investment operations as of May 29, 1998, the Company has not
projected expenses beyond the three-year period shown.
(1) The example reflects Class A shares sold subject to the maximum 5.75%
initial sales charge. Certain large purchases may be subject to a reduced
initial sales charge. Purchases of Class A shares of the Funds which, when
combined with the value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
(2) The expenses shown reflect that Class B shares automatically convert to
Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Aggressive Equity, American Value, Equity Growth, U.S.
Real Estate and Value Funds for each of the periods presented. The financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1998 Annual Report to Shareholders. The financial statements
are incorporated into the Company's Statement of Additional Information. The
foregoing Funds' financial highlights for each of the periods presented have
been audited by PricewaterhouseCoopers LLP, whose report thereon (which was
unqualified) is also incorporated into the Statement of Additional Information.
Additional performance information about the Company is contained in the
Company's Annual Report and Semi-Annual Report. The Annual Report, Semi-Annual
Report and the Statement of Additional Information are available at no cost from
the Company at the address and telephone number noted on the cover page of this
Prospectus. The following information should be read in conjunction with the
financial statements and notes thereto. Financial highlights are not presented
for the Mid Cap Growth Fund because it had not commenced investment operations
as of June 30, 1998.
8
<PAGE>
FINANCIAL HIGHLIGHTS
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A -------------------------------------
---------------------------------------- JANUARY
JANUARY 2, 2, 1996*
YEAR ENDED YEAR ENDED 1996* TO YEAR ENDED YEAR ENDED TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.98 $ 14.40 $ 12.00 $ 16.85 $ 14.38 $ 12.00
----------- ----------- ------ ----------- ---------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.07) 0.01 0.06 (0.21) (0.02) 0.03
Net Realized and Unrealized
Gain 5.03 3.95 2.40 4.96 3.86 2.39
----------- ----------- ------ ----------- ---------- --------
Total From Investment
Operations 4.96 3.96 2.46 4.75 3.84 2.42
----------- ----------- ------ ----------- ---------- --------
DISTRIBUTION:
Net Investment Income -- (0.03) (0.06) -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) -- (1.93) (1.35) --
----------- ----------- ------ ----------- ---------- --------
Total Distributions (1.93) (1.38) (0.06) (1.93) (1.37) (0.04)
----------- ----------- ------ ----------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 20.01 $ 16.98 $ 14.40 $ 19.67 $ 16.85 $ 14.38
----------- ----------- ------ ----------- ---------- --------
----------- ----------- ------ ----------- ---------- --------
TOTAL RETURN (1) 30.93% 28.93% 20.52% 29.44% 28.01% 20.18%
----------- ----------- ------ ----------- ---------- --------
----------- ----------- ------ ----------- ---------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 64,035 $ 22,521 $ 5,382 $ 130,497 $ 34,382 $ 2,426
Ratio of Expenses to Average
Net Assets 1.50% 1.57% 2.03%** 2.25% 2.32% 2.67%**
Ratio of Net Investment Income
(Loss) to
Average Net Assets (0.37)% (0.04)% 1.22%** (1.11)% (0.83)% 0.43%**
Portfolio Turnover Rate 308% 241% 204% 308% 241% 204%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.22 $ 0.06 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.71% 2.38% 3.26%** 2.47% 2.88% 3.79%**
Net Investment Income (Loss)
to Average Net Assets (0.59)% (0.85)% (0.01)%** (1.34)% (1.43)% (0.69)%**
Ratio of Expenses to Average
Net Assets
excluding dividend expense
on securities sold short 1.50% 1.50% 1.50%** 2.25% 2.25% 2.25%**
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------
JANUARY 2,
YEAR ENDED YEAR ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996
<S> <C> <C> <C>
- ------------------------------ ----------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.83 $ 14.37 $ 12.00
----------- ----------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.21) (0.06) 0.03
Net Realized and Unrealized
Gain 4.97 3.89 2.38
----------- ----------- ------
Total From Investment
Operations 4.76 3.83 2.41
----------- ----------- ------
DISTRIBUTION:
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
----------- ----------- ------
Total Distributions (1.93) (1.37) (0.04)
----------- ----------- ------
NET ASSET VALUE, END OF PERIOD $ 19.66 $ 16.83 $ 14.37
----------- ----------- ------
----------- ----------- ------
TOTAL RETURN (1) 29.90% 28.04% 20.10%
----------- ----------- ------
----------- ----------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 24,872 $ 9,410 $ 2,582
Ratio of Expenses to Average
Net Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income
(Loss) to
Average Net Assets (1.13)% (0.77)% 0.44%**
Portfolio Turnover Rate 308% 241% 204%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.07 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.25% 3.23% 3.80%**
Net Investment Income (Loss)
to Average Net Assets (1.35)% (1.67)% (0.69)%**
Ratio of Expenses to Average
Net Assets
excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
- ------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A --------------------------------
-------------------------------------------------------- AUGUST
YEAR YEAR OCTOBER 1,
YEAR ENDED ENDED 18, YEAR YEAR 1995+
YEAR ENDED ENDED JUNE JUNE 1993* ENDED ENDED TO JUNE
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, 30, 30, TO JUNE JUNE 30, JUNE 30, 30,
RATIOS 1998# 1997 1996 1995 30, 1994 1998# 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 12.00 $ 17.59 $ 14.63 $ 13.37
---------- -------- ------- ------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) 0.20 0.27 0.27 0.17 (0.17) 0.09 0.15
Net Realized and
Unrealized Gain (Loss) 4.84 4.05 1.94 1.44 (0.30) 4.83 4.05 1.46
---------- -------- ------- ------- -------- --------- -------- -------
Total from Investment
Operations 4.82 4.25 2.21 1.71 (0.13) 4.66 4.14 1.61
---------- -------- ------- ------- -------- --------- -------- -------
DISTRIBUTIONS
Net Investment Income (0.03) (0.20) (0.27) (0.28) (0.17) (0.01) (0.09) (0.15)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- -- (0.00)++ (0.00)++ (0.01)
Net Realized Gain (1.04) (1.09) (0.19) (0.24) -- (1.09) (1.04) (0.19)
---------- -------- ------- ------- -------- --------- -------- -------
Total Distributions (1.07) (1.29) (0.47) (0.52) (0.17) (1.05) (1.18) (0.35)
---------- -------- ------- ------- -------- --------- -------- -------
NET ASSET VALUE, END OF
PERIOD $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 21.20 $ 17.59 $ 14.63
---------- -------- ------- ------- -------- --------- -------- -------
---------- -------- ------- ------- -------- --------- -------- -------
TOTAL RETURN (1) 28.26% 30.68% 17.41% 15.01% (1.12)% 27.30% 29.77% 12.29%
---------- -------- ------- ------- -------- --------- -------- -------
---------- -------- ------- ------- -------- --------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 220,100 $ 34,331 $19,674 $20,675 $ 10,717 $ 269,836 $ 15,331 $ 2,485
Ratio of Expenses to Average
Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%** 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income to Average Net
Assets (0.09)% 1.25% 1.90% 2.29% 2.14%** (0.84)% 0.40% 1.18%**
Portfolio Turnover Rate 207% 73% 41% 23% 17% 207% 73% 41%
- --------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08 $ 0.02 $ 0.06 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.58% 1.76% 1.81% 1.96% 2.48%** 2.33% 2.48% 2.61%**
Net Investment Income to
Average Net Assets (0.18)% 0.98% 1.59% 1.83% 1.16%** (0.93)% 0.14% 0.82%**
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
10
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------
YEAR YEAR OCTOBER 18,
YEAR ENDED ENDED YEAR ENDED ENDED 1993*
JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1998# 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69 $ 12.00
------------ --------- ---------- -------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.17) 0.08 0.16 0.17 0.11
Net Realized and Unrealized Gain
(Loss) 4.83 4.05 1.94 1.44 (0.31)
------------ --------- ---------- -------- -----------
Total from Investment Operations 4.66 4.13 2.10 1.61 (0.20)
------------ --------- ---------- -------- -----------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15) (0.17) (0.11)
In Excess of Net Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ --------- ---------- -------- -----------
Total Distributions (1.05) (1.18) (0.35) (0.41) (0.11)
------------ --------- ---------- -------- -----------
NET ASSET VALUE, END OF PERIOD $ 21.20 $ 17.59 $ 14.64 $ 12.89 $ 11.69
------------ --------- ---------- -------- -----------
------------ --------- ---------- -------- -----------
TOTAL RETURN (1) 27.28% 29.67% 16.50% 14.13% (1.70)%
------------ --------- ---------- -------- -----------
------------ --------- ---------- -------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 127,401 $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to Average Net
Assets 2.25% 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment Income to
Average Net Assets (0.84)% 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.33% 2.47% 2.58% 2.71% 3.28%**
Net Investment Income to Average
Net Assets (0.92)% 0.22% 0.84% 1.08% 0.36%**
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based on monthly
average shares outstanding.
11
<PAGE>
FINANCIAL HIGHLIGHTS
EQUITY GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- --------- ---------
MAY 29, MAY 29, MAY 29,
1998* 1998* 1998*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998 30, 1998 30, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Realized Gain 0.29 0.28 0.28
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.29 $ 10.28 $ 10.28
--------- --------- ---------
--------- --------- ---------
TOTAL RETURN (1) 2.90% 2.80% 2.80%
--------- --------- ---------
--------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 2,057 $ 1,543 $ 1,543
Ratio of Expenses to Average Net Assets 1.50%** 2.25%** 2.25%**
Ratio of Net Investment Income to
Average Net Assets 0.51%** (0.25)%** (0.25)%**
Portfolio Turnover Rate 19% 19% 19%
- ---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.02 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 4.06%** 4.81%** 4.81%**
Net Investment Income to Average Net
Assets (2.05)%** (2.81)%** (2.81)%**
- ---------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------ ------------------------------ ------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996 1998# 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 16.39 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.50 0.37 0.08 0.39 0.15 0.07 0.39 0.20 0.07
Net Realized and
Unrealized Gain 0.88 4.03 0.48 0.82 4.12 0.48 0.83 4.07 0.48
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.38 4.40 0.56 1.21 4.27 0.55 1.22 4.27 0.55
-------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTION:
Net Investment Income (0.51) (0.29) (0.04) (0.39) (0.19) (0.03) (0.39) (0.19) (0.03)
In excess of Net
Investment Income (0.05) -- -- (0.04) -- -- (0.04) -- --
Net Realized Gain (1.60) (0.24) -- (1.60) (0.24) -- (1.60) (0.24) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.16) (0.53) (0.04) (2.03) (0.43) (0.03) (2.03) (0.43) (0.03)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.61 $ 16.39 $ 12.52 $ 15.54 $ 16.36 $ 12.52 $ 15.55 $ 16.36 $ 12.52
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 8.27% 35.75% 4.63% 7.23% 34.58% 4.54% 7.20% 34.56% 4.54%
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 16,873 $ 14,827 $ 1,829 $ 15,197 $ 7,120 $ 2,197 $ 4,187 $ 2,369 $ 1,782
Ratio of Expenses to Average
Net Assets 1.55% 1.55% 1.55%** 2.30% 2.30% 2.30%** 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.99% 2.33% 4.11%** 2.36% 1.49% 3.35%** 2.31% 1.46% 3.39%**
Portfolio Turnover Rate 130% 143% 0% 130% 143% 0% 130% 143% 0%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Income $ 0.09 $ 0.16 $ 0.08 $ 0.09 $ 0.11 $ 0.07 $ 0.09 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.09% 2.51% 5.58%** 2.84% 3.39% 6.34%** 2.83% 3.58% 6.32%**
Net Investment Income
(Loss) to Average Net
Assets 2.45% 1.36% 0.08%** 1.82% 0.39% (0.69)%** 1.78% 0.16% (0.63)%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
13
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- --------- ---------
JULY 7, JULY 7, JULY 7,
1997* 1997* 1997*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998# 30, 1998# 30, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.03 0.03
Net Realized and Unrealized Gain 0.56 0.56 0.55
--------- --------- ---------
Total From Investment Operations 0.67 0.59 0.58
--------- --------- ---------
DISTRIBUTIONS:
Net Investment Income (0.08) (0.03) (0.03)
In Excess of Net Investment Income (0.01) (0.00)++ (0.00)++
Net Realized Gain (0.05) (0.05) (0.05)
--------- --------- ---------
Total Distributions (0.14) (0.08) (0.08)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.51 $ 10.50
--------- --------- ---------
--------- --------- ---------
TOTAL RETURN (1) 6.74% 6.01% 5.83%
--------- --------- ---------
--------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $137,447 $142,741 $ 35,564
Ratio of Expenses to Average Net Assets 1.45%** 2.20%** 2.20%**
Ratio of Net Investment Income to
Average Net Assets 1.02%** 0.28%** 0.29%**
Portfolio Turnover Rate 38% 38% 38%
- ---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.60%** 2.35%** 2.35%**
Net Investment Income to Average Net
Assets 0.88%** 0.14%** 0.15%**
- ---------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
14
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance that a Fund will attain its investment
objective. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. For more information about
certain investment practices of the Funds, see "Additional Investment
Information" below and "Investment Objectives and Policies" in the Statement of
Additional Information.
THE AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund's investment objective is to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to this Fund, equity and
equity-linked securities include common and preferred stock, convertible
securities and rights and warrants to purchase common stocks, as well as equity
related options and futures and specialty securities, such as ELKS, LYONs and
PERCS, of U.S. and foreign issuers. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity and equity-linked
securities. Equity-linked securities are derivatives, which are financial
instruments that derive their value from the value of an underlying asset,
reference rate or index. As a non-diversified portfolio, the Fund can be more
heavily weighted in fewer stocks than a diversified portfolio. See "Investment
Limitations."
The Fund's Adviser employs a flexible and eclectic investment process in
pursuit of the Aggressive Equity Fund's investment objective. In selecting
securities for the Fund, the Adviser concentrates on a universe of rapidly
growing, high quality companies and on companies in lower, but accelerating,
earnings growth situations. The Adviser's universe of potential investments
generally comprises companies with market capitalizations of $500 million or
more but smaller market capitalization securities may be purchased from time to
time. The Fund is not restricted to investments in specific market sectors. The
Adviser uses its research capabilities, analytical resources and judgment to
assess economic, industry and market trends, as well as individual company
developments, to select promising investments for the Fund. The Adviser
concentrates on companies with strong, communicative management and clearly
defined strategies for growth. In addition, the Adviser rigorously assesses
earnings results. The Adviser seeks companies that will deliver surprisingly
strong earnings growth. Valuation is of secondary importance to the Sub-Adviser
and is viewed in the context of prospects for sustainable earnings growth and
the potential for positive earnings surprises in relation to consensus
expectations. The Fund is free to invest in any equity or equity-linked security
that, in the Adviser's judgment, provides above-average potential for capital
appreciation.
In selecting investments for the Aggressive Equity Fund, the Adviser
emphasizes individual security selection. Overweighted sector positions and
issuer positions may result from the investment process. The Fund has a
long-term investment perspective; however, the Adviser may take advantage of
short-term opportunities that are consistent with the Fund's objective by
selling recently purchased securities which have increased in value.
The Aggressive Equity Fund may invest in equity and equity-linked securities
of domestic and foreign corporations. However, the Fund does not expect to
invest more than 25% of its total assets at the time of purchase in securities
of foreign companies. The Fund may invest in securities of foreign issuers
directly or in the form of depositary receipts. The Fund may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options. The Fund may from time to time and consistent with
applicable legal requirements sell securities short that it owns (i.e., "against
the box") or borrows. The Fund may, to a limited extent, invest in non-publicly
traded securities, private placements and restricted securities. The Fund may
invest in derivatives, which include options, futures and options on futures and
swaps, and the Fund may lend its portfolio securities and purchase securities on
a when-issued or delayed delivery basis.
The Aggressive Equity Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which
15
<PAGE>
is a speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset value of the Fund's shares and in the yield on the
Fund's investments. Although the Fund is authorized to borrow, it will do so
only when the Adviser believes that borrowing will benefit the Fund after taking
into account considerations such as the costs of borrowing and the likely
investment returns on securities purchased with borrowed monies. The extent to
which a Fund will borrow will also depend upon the availability of credit. No
assurance can be given that the Funds will be able to borrow on terms acceptable
to the Funds and the Adviser. Borrowing by the Fund will create the opportunity
for increased net income but, at the same time, will involve special risk
considerations. The Aggressive Equity Fund expects that any borrowing, for other
than temporary purposes, will be made on a secured basis. The Fund's Custodian
will either segregate the assets securing the borrowing for the benefit of the
lenders or arrangements will be made with a suitable sub-custodian. If assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets. The rights of any lenders to the Fund to
receive payments of interest on and repayments of principal of borrowings will
be senior to the rights of the Fund's shareholders, and the terms of the Fund's
borrowings may contain provisions that limit certain activities of the Fund and
could result in precluding the purchase of securities and instruments that a
Fund would otherwise purchase.
For temporary defensive purposes, the Aggressive Equity Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Aggressive Equity Fund, see "Additional Investment
Information" below.
THE AMERICAN VALUE FUND
The American Value Fund's investment objective is to provide high total
return by investing in equity securities of small- to medium-sized corporations.
The Fund's Adviser seeks securities which it believes to be undervalued relative
to the stock market in general at the time of purchase. The Fund invests
primarily in corporations domiciled in the United States with equity market
capitalizations in the range of the companies represented in the Russell 2500
Small Company Index, but may invest in similar sized foreign companies. Under
normal circumstances, the Fund will invest at least 65% of the value of its
total assets in equity securities whose market capitalization is up to the top
of the range represented in the Index. The Fund may also invest in equity
securities of other corporations but will generally not invest in the 500
largest corporations in the United States. With respect to the Fund, equity
securities include common and preferred stocks, convertible securities and
rights and warrants to purchase common stock, as well as other equity interests,
such as trusts or partnership interests. Debt securities convertible into common
stocks purchased by the Fund will, at the time of purchase, be rated as
investment grade (rated in one of the four highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO")) or, if
unrated, will be of comparable quality as determined by the Adviser under the
supervision of the Board of Directors. These investments may or may not carry
voting rights. The Fund may invest in non-publicly traded securities, private
placements and restricted securities. The Fund may on occasion invest in equity
securities of foreign issuers that trade on a United States exchange or
over-the-counter either directly or in the form of depositary receipts. The Fund
may invest in forward foreign currency exchange contracts, and may invest in
foreign currency exchange futures and options. The Fund may invest in
derivatives, which include options, futures and options on futures and swaps,
and the Fund may lend its portfolio securities and purchase securities on a
when-issued or delayed delivery basis.
The Adviser invests with the philosophy that a diversified portfolio of
undervalued, small- to medium-sized companies will provide high total return in
the long run. Companies considered attractive will have the following
characteristics:
1. Stocks will most often have yields distinctly above the average of
companies with similar capitalizations.
2. The market prices of the stocks will be undervalued relative to the
normal earning power of the companies.
16
<PAGE>
3. Stock prices will be low relative to the intrinsic value of the
companies' assets.
4. Stocks will be of high quality, in the Adviser's judgment, as
evaluated by the companies' balance sheets, income statements,
franchises and product competitiveness.
The thrust of this approach is to seek investments in stocks for which
investor enthusiasm is currently low, as reflected in their valuation, but which
have the financial and fundamental features which, according to the Adviser's
assessment, will allow the stocks to achieve a higher valuation. Value is
achieved and exposure is reduced for the American Value Fund when the investment
community's perceptions improve and the stocks approach what the Adviser
believes is fair valuation. The Fund will invest in equity securities of smaller
capitalized companies, which are more vulnerable to financial and other risks
than larger companies. Investment in securities of smaller companies may involve
a higher degree of risk and price volatility than in securities of larger
companies.
The Adviser takes a long-term approach by placing a strong emphasis on its
ability to identify attractive values. The Adviser does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading. The Adviser may take advantage of short-term opportunities,
however, that are consistent with its objective of high total return. The Fund
will maintain diversity among industries and will not invest more than 25% of
its total assets in the stocks of issuers in any one industry.
For temporary defensive purposes, the American Value Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high-quality or
hold cash.
In order to facilitate the management of the American Value Fund's
portfolio, effective August 31, 1998, the Fund suspended the continuous offering
of its shares to new investors. However, existing shareholders as of August 31,
1998 may continue to purchase additional shares, as well as those in retirement
plans and certain distribution programs as determined from time to time by the
Distributor and as listed in the Company's Statement of Additional Information.
As market conditions permit, the American Value Fund may reopen sales of the
Fund's shares to new investors. Any such offerings of the American Value Fund
may be limited in amount and may commence and terminate without any prior
notice.
For further information about the foregoing and certain additional
investment practices of the American Value Fund, see "Additional Investment
Information" below.
THE EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to provide long-term
capital appreciation by investing primarily in growth-oriented equity securities
of medium and large capitalization companies. Under normal circumstances, the
Fund will invest at least 65% of the value of its total assets in equity
securities. With respect to this Fund, equity securities include common and
preferred stocks, convertible securities and rights and warrants to purchase
common stocks.
The Adviser employs a flexible and eclectic investment process in pursuit of
the Equity Growth Fund's investment objective. In selecting securities for the
Fund, the Adviser concentrates on a universe of rapidly growing, high quality
companies and lower, but accelerating, earnings growth situations. The Adviser's
universe of potential investments generally comprises companies with market
capitalizations of $500 million or more. The Fund is not restricted to
investments in specific market sectors. The Adviser uses its research
capabilities, analytical resources and judgment to assess economic, industry and
market trends, as well as individual company developments, to select promising
growth investments for the Fund. The Adviser concentrates on companies with
strong, communicative management and clearly defined strategies for growth. In
addition, the Adviser rigorously assesses company developments, including
changes in strategic direction, management focus and current and likely future
earnings results. Valuation is important to the Adviser but is viewed in the
context of prospects for sustainable earnings growth and the potential for
positive earnings surprises vis-a-vis consensus expectations. The Fund is free
to invest in any equity security that, in the Adviser's judgment, provides above
average potential for capital appreciation.
17
<PAGE>
In selecting investments for the Equity Growth Fund, the Adviser emphasizes
individual security selection. While the Fund's investments generally will be
diversified among a number of issuers, the Fund may, subject to certain
limitations, invest between 5% and 10% of its total assets in selected issuers
as a result of the Adviser's investment process. See "Investment Limitations."
Investing more of the Fund's assets in selected issuers may subject the Fund to
greater risks impacting individual securities than a fund which does not employ
such a practice. The Fund has a long-term investment perspective; however, the
Adviser may take advantage of short-term opportunities that are consistent with
the Fund's objective by selling recently purchased securities which have
increased in value.
The Equity Growth Fund may invest up to 25% of its total assets at the time
of purchase in securities of foreign companies. The Fund may invest in
securities of foreign issuers directly or in the form of depositary receipts.
The Fund may invest in forward foreign currency exchange contracts, and may
invest in foreign currency exchange futures and options. The Equity Growth Fund
may invest in convertible securities of domestic and, subject to the above
restrictions, foreign issuers on occasions when, due to market conditions, it is
more advantageous to purchase such securities than to purchase common stock.
Since the Fund invests in both common stocks and convertible securities, the
risks of investing in the general equity markets may be tempered to a degree by
the Fund's investments in convertible securities which are often not as volatile
as common stock. The Equity Growth Fund may invest in derivatives, when-issued
and delayed delivery securities and non-publicly traded securities, including
private placements and restricted securities. The Fund may from time to time and
consistent with applicable legal requirements sell securities short, lend
portfolio securities and engage in reverse repurchase agreements.
For temporary defensive purposes, the Equity Growth Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE MID CAP GROWTH FUND
The Mid Cap Growth Fund's investment objective is to achieve long-term
growth by investing primarily in common stocks and other equity securities of
small and medium size companies which are deemed by the Fund's Adviser to offer
long-term growth potential.
The Mid Cap Growth Fund generally will invest at least 65% of its total
assets in equity securities issued by companies offering long term growth
potential which have market capitalizations in the range of the companies
represented in the S&P Mid Cap 400 Index. With respect to this Fund, equity
securities include common and preferred stocks, convertible securities and
rights and warrants to purchase common stock, as well as depositary receipts. Up
to 5% of the Fund's assets may be invested in foreign equity securities,
excluding American Depositary Receipts ("ADRs"). The Fund may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options.
The Adviser manages the Mid Cap Growth Fund using a four-part process
combining quantitative, fundamental and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on estimate revisions
undergo detailed fundamental research. The Adviser uses valuation analysis to
eliminate the most overvalued securities. The Fund sells holdings when the
Adviser's estimate revision scores fall to unacceptable levels, when its
fundamental research uncovers unfavorable trends or when the securities'
valuations exceed the level that the Adviser believes is reasonable given their
growth prospects.
The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities. The Fund may from time to time and
consistent with applicable legal requirements sell securities short, lend
portfolio securities and engage in reverse repurchase agreements. For temporary
defensive purposes, the Mid Cap Growth Fund may invest a portion or all of its
assets in money market instruments and short- and medium-term debt securities
that the Adviser believes to be of high quality or hold cash.
As of the date of this Prospectus, the Mid Cap Growth Fund is not offering
shares.
18
<PAGE>
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE U.S. REAL ESTATE FUND
The investment objective of the U.S. Real Estate Fund is to provide
above-average current income and long-term capital appreciation by investing
primarily in equity securities of companies in the U.S. real estate industry,
including real estate investment trusts ("REITs"). With respect to this Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stock, as well as shares or units of
beneficial interest of REITs and limited partnership interests in master limited
partnerships.
Under normal circumstances, at least 65% of the U.S. Real Estate Fund's
total assets will be invested in income producing equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry. For
purposes of the Fund's investment policies, a company is "principally engaged"
in the real estate industry if, as determined by the Adviser, (i) it derives at
least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies in the
real estate industry may include, among others: REITs, master limited
partnerships that invest in interests in real estate, real estate operating
companies, and companies with substantial real estate holdings, such as hotel
companies, residential builders and land-rich companies. The Fund seeks to
invest in equity securities of companies that provide a dividend yield that
exceeds the composite dividend yield of securities comprising the Standard &
Poor's Composite Index of 500 Stocks (the "S&P 500").
A substantial portion of the U.S. Real Estate Fund's total assets will be
invested in securities of REITs. REITs pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests. Generally, REITs can be classified as Equity REITs, Mortgage REITs or
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real estate securities they own, e.g.,
apartment properties, retail shopping centers, office and industrial properties,
hotels, health-care facilities, manufactured housing and mixed-property types.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive their income primarily from interest payments on the credit they have
extended. Hybrid REITs combine the characteristics of both Equity and Mortgage
REITs. The Fund will invest primarily in Equity REITs. A REIT is not taxed at
the federal level on income distributed to its shareholders or unitholders if it
complies with certain requirements relating to its organization, ownership,
assets and income, and with the requirement that it distribute to its
shareholders or unitholders at least 95% of its taxable income for each taxable
year. A shareholder in the Fund should realize that by investing in REITs
indirectly through the Fund, he will bear not only his proportionate share of
the expenses of the Fund, but also indirectly, the management expenses of
underlying REITs.
The U.S. Real Estate Fund will concentrate in the U.S. real estate industry
and may not invest more than 25% of its total assets in securities of companies
in any one other industry (for these purposes the U.S. Government, its agencies
and instrumentalities are not considered an industry). Under normal
circumstances, the Fund may invest up to 35% of its total assets in debt
securities issued or guaranteed by real estate companies or secured by real
estate assets and rated, at time of purchase, in one of the four highest rating
categories by an NRSRO or determined by the Adviser to be of comparable quality
at the time of purchase; high quality money market instruments; or debt
securities rated in one of the two highest ratings categories by an NRSRO,
consisting of corporate debt securities and U.S. Government securities.
Investment grade securities are securities that are rated in one of the four
highest rating categories by an NRSRO. Securities rated in the lowest category
of investment grade securities have speculative characteristics. The Fund may
also, to a limited extent, invest in non-publicly traded securities, private
placements and restricted securities.
The Fund may be subject to the risks associated with the direct ownership of
real estate because of its policy of concentrating in the securities of
companies principally engaged in the real estate industry. For example, real
estate values may fluctuate as a result of general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, demographic trends and variations in rental income,
changes in zoning laws, casualty or condemnation losses, environmental risks,
regulatory limitations on rents, changes in neighborhood values, related party
risks, changes in the appeal of properties to tenants,
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changes in interest rates and other real estate capital market influences.
Generally, increases in interest rates will increase the costs of obtaining
financing, which could directly and indirectly decrease the value of the Fund's
investments.
Because the U.S. Real Estate Fund may invest a substantial portion of its
assets in REITs, the Fund may also be subject to certain risks associated with
the direct investments of REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers or tenants. Mortgage
REITs may be affected by the quality of the credit extended. Furthermore, REITs
are dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a limited
number of properties, in a narrow geographic area, or in a single property type.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to defaults by
borrowers and to self-liquidations. In addition, the performance of a REIT may
be affected by its failure to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended (the "Code"), or its failure to
maintain exemption from registration under the Investment Company Act of 1940,
as amended (the "1940 Act"). Rising interest rates may cause the value of the
debt securities in which the Fund will invest to fall. Conversely, falling
interest rates may cause their value to rise. Changes in the value of portfolio
securities will not necessarily affect cash income derived from these securities
but will affect the Fund's net asset value.
For temporary defensive purposes, the Fund may invest a portion or all of
its assets in money market instruments and short- and medium-term debt
securities that the Sub-Adviser believes to be of high-quality or hold cash.
The Board of Directors of the U.S. Real Estate Fund has approved an
Agreement and Plan of Reorganization between the Fund and Van Kampen Real Estate
Securities Fund (the "Real Estate Securities Fund"), advised by Van Kampen Asset
Management Inc., providing for the transfer of assets and liabilities of the
Fund to the Real Estate Securities Fund in exchange for shares of beneficial
interest of the Real Estate Securities Fund at its net asset value per share
(the "Reorganization").
The Reorganization is subject to approval by the shareholders of the U.S.
Real Estate Fund. Further details of the proposed Reorganization will be
contained in the proxy statement/prospectus expected to be mailed to
shareholders in 1998.
The Real Estate Securities Fund's net assets as of June 30, 1998 were
approximately $146.7 million. Its investment objective is to seek to provide
shareholders with long-term growth of capital, and a secondary objective is to
seek current income. The U.S. Real Estate Fund and the Real Estate Securities
Fund have similar investment objectives, policies and practices, and are managed
by the same portfolio management team.
The U.S. Real Estate Fund will continue its normal operations prior to the
Reorganization.
For further information about the foregoing and certain additional
investment practices of the U.S. Real Estate Fund, see "Additional Investment
Information" below.
THE VALUE FUND
The Value Fund's investment objective is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common stocks and other equity
securities that are deemed by the Fund's Adviser to be relatively undervalued
based on various measures such as price/earnings ratios and price/book ratios.
The Value Fund generally will invest at least 65% of its assets in equity
securities which are deemed to be undervalued. For purposes of this Fund, equity
securities include common and preferred stocks, convertible securities, and
warrants and rights to purchase common stock, as well as depositary receipts. Up
to 5% of the Fund's assets may be invested in foreign equity securities,
excluding ADRs. The Fund may invest in forward foreign currency exchange
contracts, and may invest in foreign currency exchange futures and options. The
Fund generally will invest in equity securities of companies with equity
capitalization greater than $300 million.
The Adviser selects common stocks which are deemed to be undervalued
relative to the stock market in general as measured by the S&P 500, based on the
value measures such as price/earnings ratios and price/book
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ratios, as well as fundamental research. While capital return will be emphasized
somewhat more than income return, the Value Fund's total return will consist of
both capital and income returns. Stocks which are deemed to be undervalued in
the marketplace have, under most market conditions, higher dividend income
returns than stocks which are deemed to have long-term earnings growth potential
which normally sell at higher price/ earnings ratios. However, the Adviser may
select non-dividend paying stocks for their value characteristics.
The Value Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may from time to time and consistent with
applicable legal requirements sell securities short, lend portfolio securities
and engage in reverse repurchase agreements. For temporary defensive purposes,
the Value Fund may invest a portion or all of its assets in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality or hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The American Value and U.S. Real Estate Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets.
The Equity Growth, Mid Cap Growth and Value Funds may borrow money (i) as a
temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of such Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). These Funds may not
purchase additional securities when borrowings exceed 5% of total assets.
The Aggressive Equity Fund may borrow for investment purposes amounts up to
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing. See "Investment
Objectives and Policies -- The Aggressive Equity Fund" for further information.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
invest in equity-linked securities, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. Trading prices of the underlying common stock will be influenced by the
issuer's operational results, by complex, interrelated political, economic,
financial or other factors affecting the capital markets, the stock exchanges on
which the underlying common stock is traded and the market segment of which the
issuer is a part. In addition, it is not possible to predict how equity-linked
securities will trade in the secondary market which is fairly developed and
liquid. The market for such securities may be shallow, however, and high volume
trades may be possible only with discounting. In addition to the foregoing
risks, the return on such securities depends on the creditworthiness of the
issuer of the securities, which may be the issuer of the underlying securities
or a third party investment banker or other lender. The creditworthiness of such
third party issuer of equity-linked securities may, and often does, exceed the
creditworthiness of the issuer of the underlying securities. The advantage of
using equity-linked securities over traditional equity and debt securities is
that the former are income producing vehicles that may provide a higher income
than the dividend income on the underlying equity securities while allowing some
participation in the capital appreciation of the underlying equity securities.
Another advantage of using equity-linked securities is that they may be used for
hedging to reduce the risk of investing in the generally more volatile
underlying equity securities.
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DEPOSITARY RECEIPTS
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. Each of the Funds, other than the U.S. Real Estate Fund,
may invest in ADRs and the Funds, other than the American Value and U.S. Real
Estate Funds, may invest in other depository receipts. ADRs include American
Depositary Shares and New York Shares and may be "sponsored" or "unsponsored."
Sponsored ADRs are established jointly by a depositary and the underlying
issuer, whereas unsponsored ADRs may be established by a depositary without
participation by the underlying issuer. GDRs, EDRs and other types of depositary
receipts are typically issued by foreign depositaries, although they may also be
issued by U.S. depositaries, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the Funds' investment policies,
investments in depositary receipts will be deemed to be investments in the
underlying securities.
FOREIGN BONDS
The Value and Mid Cap Growth Funds may invest in foreign bonds. Foreign
bonds are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund, other than the U.S. Real Estate Fund, may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a decline in a foreign currency against the U.S. Dollar between the
trade date and settlement date when a Fund purchases or sells securities,
locking in the U.S. Dollar value of dividends declared on securities held by the
Fund and generally protecting the U.S. Dollar value of securities held by the
Fund against exchange rate fluctuations. While such forward contracts may limit
losses to a Fund as a result of exchange rate fluctuations, they will also limit
any exchange rate gains that might otherwise have been realized.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic
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issuers. Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Funds by domestic companies. Additional risks
include future adverse political and economic developments, the possibility that
a foreign jurisdiction might impose or change withholding taxes on income
payable with respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, and the possible
adoption of foreign governmental restrictions such as exchange controls.
Emerging countries may have less stable political environments than more
developed countries. Also, it may be more difficult to obtain a judgment in a
court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). To the extent a Fund invests a portion of its
assets in investment company securities, those assets will be subject to the
expenses of the purchased investment company as well as to the expenses of the
Fund itself.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Aggressive Equity,
American Value, Equity Growth and U.S Real Estate Funds will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Funds include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
including high-grade commercial paper, repurchase agreements and bank
obligations, such as bankers' acceptances and certificates of deposit (including
Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, a Fund may be required to bear the expenses of
registration. No Fund may invest more than 15% of its net assets in illiquid
securities which generally includes securities that are restricted from sale to
the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
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supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, availability
of reliable pricing information, the number of dealers making quotes or making a
market in the security and the number of potential purchases in the market for
the security. To the extent that qualified institutional buyers become
uninterested in buying 144A Securities, then such securities in a Fund's
portfolio could increase a Fund's level of illiquidity. Notwithstanding the
above none of the Aggressive Equity, American Value and U.S. Real Estate Funds
may invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a repurchase agreement, a Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term of these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Fund to the seller. The Fund always receives securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, a Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon the collateral may be delayed or limited. Repurchase
agreements with durations (or maturities) over seven days in length are
considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Equity Growth, Mid Cap Growth and Value Funds may enter into reverse
repurchase agreements with brokers, dealers, banks or other financial
institutions that meet credit guidelines set by the Fund's Board of Directors.
In a reverse repurchase agreement, a Fund sells a security and agrees to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by a Fund. A Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. A Fund will
enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with an appropriate custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a Fund's net asset value. In the event that
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
SHORT SALES
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
from time to time sell securities short without limitation, although they do not
intend to sell securities short on a regular basis. A short sale is a
transaction in which a Fund sells securities it either owns or has the right to
acquire at no added cost (i.e., "against the box") or it does not own (but has
borrowed) in anticipation of a decline in the market price of the securities.
When a Fund makes a short sale of borrowed securities, the proceeds it receives
from the sale will be held on behalf of a broker until the Fund replaces the
borrowed securities. To deliver the securities to the buyer, a Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. A Fund may have to pay a
premium to borrow the securities and must pay any dividends or interest payable
on the securities until they are replaced.
A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or liquid assets. In addition, the Fund will place in a segregated
account with an appropriate custodian an amount of cash or liquid assets equal
to the difference, if any, between (1) the market value of the securities sold
and (2) any cash or liquid securities deposited as
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collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). Possible losses from short sales differ from losses
that could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases can equal only the total
amount invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is the current policy of the Aggressive
Equity, American Value and U.S. Real Estate Funds not to enter into when-issued
commitments or delayed delivery securities exceeding, in the aggregate, 15% of
the Fund's net assets other than obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
DERIVATIVE INSTRUMENTS
The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Funds may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Funds. Each of the Funds, other than (to the extent described below) the
Equity Growth, Mid Cap Growth and Value Funds, will limit its use of the
foregoing derivative instruments for non-hedging purposes to 33 1/3% of its
total assets measured by the aggregate notional amount of outstanding derivative
instruments. In addition, none of the Aggressive Equity, American Value and U.S.
Real Estate Funds will enter into futures contracts and options on futures
contracts to the extent that the notional value of its outstanding obligations
to purchase securities under such contracts would exceed 20% of its total
assets. The Equity Growth Fund will limit its use of derivative instruments to
50% of its total assets measured by the aggregate notional amount of outstanding
derivative instruments, provided that no more than 33 1/3% of its total assets
are invested, for non-hedging purposes, in derivatives other than futures and
options on futures. The Mid Cap Growth and Value Funds will not enter into
futures contracts to the extent that each Fund's outstanding obligations to
purchase securities under these contracts, in combination with its outstanding
obligations with respect to options transactions, would exceed 50% of its total
assets. The Funds' investments in forward foreign currency contracts and
derivatives used for hedging purposes are not subject to the limits described
above.
The Funds may use derivative instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign
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investment restrictions or other reasons or when doing so provides a price
advantage over purchasing the underlying securities directly, either because of
a pricing differential between the derivatives and securities markets or because
of lower transaction costs associated with the derivatives transaction.
Derivatives may also be used by a Fund for hedging purposes and in other
circumstances when a Fund's Adviser believes it advantageous to do so consistent
with the Fund's investment objective. The Funds will not, however, use
derivatives in a manner that creates leverage, except to the extent that the use
of leverage is expressly permitted by a particular Fund's investment policies,
and then only in a manner consistent with such policies.
Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Funds may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
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<PAGE>
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by entering into futures
contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
OPTIONS TRANSACTIONS. The Funds may seek to increase their returns or may
hedge their portfolio investments through options transactions with respect to
(i) securities, instruments, indices or baskets thereof in which such Funds may
invest and (ii) foreign currencies. Purchasing a put option gives a Fund the
right to sell a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the
option. Purchasing a call option gives a Fund the right to purchase a specified
security, currency or basket of securities or currencies at the exercise price
until the expiration of the option.
Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. A Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price no
higher than the price at which the underlying instrument was sold pursuant to a
short option position.
By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by a
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest
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<PAGE>
rates, prices and total return on interest rate indices, fixed income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, a Fund may agree to swap the return
generated by a fixed income index for the return generated by a second fixed
income index. The currency swaps in which the Funds may enter will generally
involve an agreement to pay interest streams in one currency based on a
specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. A Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of 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 market
values, interest rates and currency exchange rates, the investment performance
of the Funds would be less favorable than it would have been if this investment
technique were not used.
YEAR 2000 RISKS.
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Adviser is
taking steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact upon the Funds. In addition, the Year
2000 Problem may adversely affect the issuers of securities in which the Funds
may invest which, in turn, may adversely affect the net asset value of the
Funds.
INVESTMENT LIMITATIONS
Each Fund, except the Aggressive Equity and U.S. Real Estate Funds, is a
diversified investment company under the 1940 Act, and, therefore, with respect
to 75% of its total assets, such Fund may not (a) invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities and (b) own more than 10% of the
outstanding voting securities of any one issuer. The Aggressive Equity and U.S.
Real Estate Funds are non-diversified investment companies under the 1940 Act,
which means that each such Fund is not limited by the 1940 Act in the proportion
of its total assets that may be invested in the obligations of a single issuer.
Thus, each such Fund may invest a greater proportion of its total assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk resulting from such practice than a portfolio which is diversified.
Each such Fund, however, intends to comply with the diversification requirements
imposed by the Code for qualification as a regulated investment company.
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<PAGE>
Each Fund also operates under certain investment restrictions that are
deemed fundamental policies and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each Fund
operates under certain non-fundamental investment limitations as described in
the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Funds.
The Adviser provides investment advice and portfolio management services
pursuant to an advisory agreement (the "Advisory Agreement") and, subject to the
supervision of the Company's Board of Directors, makes the Funds' investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Funds' investments. The Advisory Agreement also provides that the
Adviser may appoint sub-advisers to perform these portfolio management
responsibilities. See "Investment Sub-Advisers" below. The Adviser is entitled
to receive an aggregate advisory fee computed daily and paid monthly at the
following annual rates applied to the average daily net assets for each Fund:
<TABLE>
<S> <C> <C>
Aggressive Equity Fund.................. 0.90%
American Value Fund..................... 0.85%
Equity Growth Fund...................... 0.80%
Mid Cap Growth Fund..................... 0.75%
U.S. Real Estate Fund................... 1.00%
Value Fund.............................. 0.80% First $500 million;
0.75% Next $500
million;
and 0.70% Over $1
billion
</TABLE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of the Funds' other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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; 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; and credit services.
INVESTMENT SUB-ADVISERS. Morgan Stanley Asset Management Inc. ("MSAM," or a
"Sub-Adviser") is the investment sub-adviser of the Aggressive Equity, American
Value, Equity Growth and U.S. Real Estate Funds and Miller Anderson & Sherrerd,
LLP ("MAS," or a "Sub-Adviser") is the investment sub-adviser of the Mid Cap
Growth and Value Funds. The Sub-Advisers provide investment advice and portfolio
management services pursuant to investment sub-advisory agreements and, subject
to the supervision of the Adviser and the Company's Board of Directors, make the
Funds' investment decisions, arrange for the execution of portfolio transactions
and generally manage the Funds' investments.
The Sub-Advisers are entitled to receive sub-advisory fees computed daily
and paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM or
MAS, as appropriate, one-half of the total investment advisory fee payable to
the Adviser by the Fund (after application of any fee waivers in effect) for
such monthly period. If a Fund's average daily net assets for the monthly period
are greater than $500 million, the Adviser shall pay MSAM or MAS, as
appropriate, a fee for
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<PAGE>
such monthly period equal to the greater of (a) one-half of what the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period would have been had the
Fund's average daily net assets during such period been equal to $500 million,
or (b) forty-five percent of the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion in assets under
management. MAS is a Pennsylvania limited liability partnership founded in 1969
with its principal offices at One Tower Bridge, West Conshohocken, Pennsylvania
19428. MAS provides investment services to employee benefit plans, endowment
funds, foundations and other institutional investors and has served as an
investment adviser to several open-end investment companies since 1984. As of
June 30, 1998, MAS had approximately $67 billion in assets under management.
PORTFOLIO MANAGERS. The following individuals have primary portfolio
management responsibility for the Funds noted below:
AGGRESSIVE EQUITY FUND -- PHILIP W. FRIEDMAN, WILLIAM S. AUSLANDER AND KENNY
RADER. Messrs. Friedman, Auslander and Rader have shared responsibility for
managing Aggressive Equity Fund since September 23, 1998. Philip W. Friedman is
a Managing Director of MSAM and Morgan Stanley and is a member of MSAM's
investment management team. In addition to portfolio management, his equity
research responsibilities include business equipment and services, capital
goods, consumer durables, multi-industry and transportation. Prior to joining
MSAM in 1997, he was the North American Director of Equity Research at Morgan
Stanley. From 1990 to 1995, he was a member of Morgan Stanley's Equity Research
team. Mr. Friedman graduated from Rutgers University with a B.A. (Phi Beta Kappa
and Summa Cum Laude) in Economics. He also holds an M.B.A. from J.L. Kellogg
School of Management at Northwestern University. William S. Auslander is a Vice
President of MSAM. He joined the Firm in 1995 as an equity analyst in the
Institutional Equity Group. Prior to joining MSAM he worked at Icahn & Co. for
nine years as an equity analyst. He graduated from the University of Wisconsin
at Madison with a B.A. in Economics and received an M.B.A. from Columbia
University in 1993. Kenny Rader is a Vice President of MSAM. He joined the Firm
in 1998 and is a portfolio manager in the Domestic Equity Group. Prior to
joining Morgan Stanley Dean Witter & Co., he worked for various hedge funds
including BEM Management and Odyssey Partners. He holds a B.S. degree from the
University of Pennsylvania and is a Chartered Financial Analyst.
AMERICAN VALUE FUND -- GARY G. SCHLARBAUM, WILLIAM B. GERLACH, BRADLEY S.
DANIELS AND CHRIS LEAVY. Messrs. Schlarbaum, Gerlach and Daniels share primary
responsibility for managing the American Value Fund. Gary G. Schlarbaum, a
Managing Director of Morgan Stanley, joined MAS in 1987. He assumed
responsibility for the MAS Funds' Equity and Small Cap Value Portfolios in 1987,
the MAS Funds' Balanced Portfolio in 1992 and the MAS Funds' Multi-Asset-Class
and Mid Cap Value Portfolios in 1994. Mr. Schlarbaum also is a Director of MAS
Fund Distribution, Inc. He previously was with First Chicago Investment Advisers
and was a Professor at the Krannert Graduate School at Purdue University. Mr.
Schlarbaum holds a B.A. in Economics from Coe College and a Ph.D. in Applied
Economics from University of Pennsylvania. Mr. Schlarbaum assumed primary
responsibility for managing the Fund's assets in January, 1997. Mr. Gerlach
joined MSAM in July, 1996 and has worked with the Adviser's affiliate, MAS for
the past five years. He became a portfolio manager of the Fund in November,
1996. Mr. Gerlach also became a portfolio manager of the MAS Funds' Small Cap
Value and Mid Cap Value Portfolios in 1996. Previously, he was with Alphametrics
Corporation and Wharton Econometric Forecasting Associates. Mr. Gerlach holds a
B.A. in Economics from Haverford College. Bradley S. Daniels, a Vice President
of Morgan Stanley, joined MAS in 1985. He assumed responsibility for the MAS
Funds' Small Cap Value Portfolio in 1986 and the MAS Funds' Mid Cap Value
Portfolio in 1994. Mr. Daniels has shared
responsibility for managing the Fund since 1996. Chris Leavy joined MAS in 1997.
He served as a Portfolio Manager for Capitoline Investment Services from
1995-1997; a Portfolio Manager for Premier Trust Company from 1994 to 1995; and
as a Research Analyst for Leavy Investment Management from 1993-1994. He assumed
responsibility for the American Value Fund in 1998. Mr. Leavy holds a B.A. in
Economics from Trinity University.
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<PAGE>
EQUITY GROWTH FUND -- PHILIP W. FRIEDMAN, MARGARET K. JOHNSON AND WILLIAM S.
AUSLANDER. Ms. Johnson has had primary responsibility for managing the Equity
Growth Fund since May 29, 1998 and Mr. Friedman and Mr. Auslander have shared
primary responsibility for managing the Equity Growth Fund since September 23,
1998. Margaret Johnson is a Principal of MSAM and Morgan Stanley and a Portfolio
Manager in the Institutional Equity Group. She joined MSAM in 1984 and worked as
an Analyst in the Marketing and Fiduciary Advisor areas. Ms. Johnson became a
Equity Analyst in 1986 and a Portfolio Manager in 1989. She holds a B.A. degree
from Yale College and is a Chartered Financial Analyst. For a description of the
business experience of Messrs. Friedman and Auslander, see "Aggressive Equity
Fund" above.
MID CAP GROWTH FUND -- ARDEN C. ARMSTRONG AND DAVID P. CHU. Ms. Armstrong
and Mr. Chu will share primary responsibility for managing the Fund's assets
upon commencement of operations. Arden Armstrong, a Managing Director of Morgan
Stanley, joined MAS in 1986. She assumed responsibility for the MAS Funds Mid
Cap Growth Portfolio in 1990, the MAS Funds Growth Portfolio in 1993 and the MAS
Funds Equity Portfolio in 1994. Ms. Armstrong holds a B.A. (Magna Cum Laude) in
Economics from Brown University, an M.B.A. from the University of Pennsylvania
- -- Wharton School and is a Chartered Financial Analyst. David P. Chu, Vice
President, Morgan Stanley, joined MAS in 1998. He served as Senior Equity
Analyst from 1992 to 1997 and as Co-Portfolio Manager in 1997 for NationsBank
and its subsidiary. TradeStreet Investment Associates. He assumed responsibility
for the Mid Cap Growth Fund in 1998. Mr. Chu earned a B.S. degree from
University of Michigan and an MBA from University of Pennsylvania-Wharton
School.
U.S. REAL ESTATE FUND -- RUSSELL PLATT AND THEODORE R. BIGMAN. Messrs. Platt
and Bigman have shared primary responsibility for managing the Fund since its
inception. Mr. Platt joined MSAM and Morgan Stanley in 1982 and currently is a
Managing Director of MSAM and Morgan Stanley. He has primary responsibility for
managing the real estate securities investment business for MSAM and serves as a
member of the Investment Committee of The Morgan Stanley Real Estate Fund
("MSREF"). Previously, Mr. Platt served as a Director of MSREF, where he was
involved in capital raising, acquisitions, oversight of investments and investor
relations. From 1991 to 1993, Mr. Platt was head of Morgan Stanley's Transaction
Development Group, which was responsible for identifying and structuring real
estate investment opportunities for MSAM and its clients worldwide. Mr. Platt
graduated from Williams College in 1982 with a B.A. in Economics and received
his M.B.A. from Harvard Business School in 1986. Mr. Bigman joined MSAM and
Morgan Stanley in 1995 and currently is a Principal of MSAM and Morgan Stanley.
Together with Mr. Platt, he is responsible for MSAM's real estate securities
research. Prior to joining MSAM, he was a Director at CS First Boston, where he
worked for eight years in the Real Estate Group. Since 1992, Mr. Bigman
established and managed the REIT effort at CS First Boston including primary
responsibility for $2.5 billion of initial public offerings by real estate
investment trusts. Mr. Bigman graduated from Brandeis University with a B.A. in
Economics and received his M.B.A. from Harvard University.
VALUE FUND -- ROBERT J. MARCIN, RICHARD M. BEHLER AND NICHOLAS J. KOVICH.
Messrs. Marcin, Behler and Kovich have shared primary responsibility for
managing the Value Fund since its inception. Robert J. Marcin, a Managing
Director of Morgan Stanley, joined MAS in 1988. He assumed responsibility for
the MAS Funds' Value Portfolio in 1990 and the MAS Funds' Equity Portfolio in
1994. Mr. Marcin holds a B.A. (Cum Laude) from Dartmouth College and is a
Chartered Financial Analyst. Richard M. Behler, a Principal of Morgan Stanley,
joined MAS in 1995. He served as a Portfolio Manager from 1992 through 1995 for
Moore Capital Management. He assumed responsibility for the MAS Funds' Value
Portfolio in 1996. Mr. Behler holds a B.A. (Cum Laude) in Economics from
Villanova University and an M.A. and Ph.D. in Economics from University of Notre
Dame. Nicholas J. Kovich, a Managing Director of Morgan Stanley, joined MAS in
1988. He assumed responsibility for the MAS Funds' Equity Portfolio in 1994 and
the MAS Funds' Value Portfolio in 1997. Mr. Kovich received a B.S. in Chemical
Engineering and an M.B.A. from University of Kansas.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and
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<PAGE>
transfer agent services. For its services under the Administration Agreement,
the Company pays the Administrator a monthly fee which on an annual basis equals
0.25% of the average daily net assets of the Funds.
Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Advisers, Administrator and the
Company's Distributor. The officers of the Company conduct and supervise its
daily business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds. The Company may in the future offer one or more classes of
shares for each Fund that may have sales charges or other distribution charges
or a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from each Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to Class C
shares, the Distributor expects to reallocate substantially all of its fee to
such Participating Dealers. The Distributor may, in its discretion, voluntarily
waive from time to time all or any portion of its distribution fee and the
Distributor is free to make additional payments out of its own assets to promote
the sale of Fund shares. Class A shares, Class B shares and Class C shares are
subject to a service fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of a Fund. In addition to
such payments, the Adviser or its affiliates may pay certain expenses associated
with activities which might be construed to be financing the sale of these
Funds' shares including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services). Any payments by the Adviser or its affiliates will be made directly
from their assets and will not be made from the assets of the Company or by the
assessment of a charge on shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan
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<PAGE>
may be terminated at any time by a vote of a majority of the 12b-1 Directors or
by a vote of a majority of the outstanding voting securities of the applicable
class of such Fund. The fee set forth above will be paid by the appropriate
class to the Distributor unless and until a Plan is terminated or not renewed.
The Company intends to operate each Plan in accordance with its terms and the
NASD Conduct Rules concerning sales charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services (defined below). The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. Each Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company 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 are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
As of the date of this Prospectus the Mid Cap Growth Fund is not offering
shares. As of the date of this Prospectus, the American Value Fund has suspended
the continuous offering of its shares to new investors. However, existing
shareholders may continue to purchase additional shares, as well as those in
retirement plan and certain distribution programs as determined from time to
time by the Distributor and as listed in the Company's Statement of Additional
Information.
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. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Funds available for sale may be purchased on any business day
through Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, Van Kampen Investor
Services Inc. ("Investor Services"), a wholly-owned subsidiary of Van Kampen.
When purchasing shares of the Company, investors must specify the Fund and
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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable 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 per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such
33
<PAGE>
order is transmitted to the Distributor prior to the Distributor's close of
business on such day. Orders received by Participating Dealers after the close
of the New York Stock Exchange (the "NYSE") are priced based on the net asset
value per share calculated after the next day's close provided they are received
by the Distributor prior to the Distributor's close of business on such day. It
is the responsibility of Participating Dealers to transmit orders received by
them to the Distributor so they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including higher distribution fees) resulting from
such sales arrangement, (ii) generally, each class has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan to which its
distribution fee or service fee is paid, (iii) certain shares are subject to a
conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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 higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company'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.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in a Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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 "Fund Expenses" 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 shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, 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 an 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 most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
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. Investors should understand that the
34
<PAGE>
purpose and function of the CDSC and ongoing distribution fee with respect to
Class B shares and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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 Participating 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 Company. 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 Company. 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 business
nature. In some instances, additional compensation or promotional incentives may
be offered to Participating Dealers that have sold or may sell significant
amounts of shares during specified periods of time. Such fees paid for such
services and activities with respect to a Fund will not exceed in the aggregate
1.25% of the average total daily net assets of the Fund on an annual basis. All
of the foregoing payments are made by the Distributor out of its own assets.
These programs will not change the price an investor will pay for shares or the
amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
DEALERS
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- ------------------------------ --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$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 initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries 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, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating 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
35
<PAGE>
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 Company.
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 Participating Dealers must notify the Company 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 Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
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
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
("Asset Management") and distributed by the Distributor as determined from time
to time by the Company's Board of Directors.
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 a Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the 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
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charges 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 form 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment
36
<PAGE>
trust program meets certain uniform criteria relating to cost savings by the
Company 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 Participating
Dealer, if any, through which such participation in the qualifying program was
initiated 0.50% of the offering price as a dealer concession or agency
commission. Persons desiring more information with respect to this program,
including the applicable terms and conditions thereof, should contact their
Participating 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 a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value per share without an initial sales charge, upon written assurance
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the Fund, by:
(1) Current or retired trustees/directors of funds advised by the
Adviser or Asset Management 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 institution.
(4) Registered investments 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 Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans which invest in multiple fund families through national wirehouse
alliance programs subject to certain minimum size and operational
requirements. Directors and other fiduciaries should refer to the Statement
of Additional Information for further detail with respect to such alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a
retirement plan or held in a tax-advantaged retirement account who purchase
shares of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary 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
37
<PAGE>
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 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. Section 403(b)
and similar accounts for which Van Kampen Trust Company ("Van Kampen Trust")
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. A commission will be paid to dealers who initiate and are responsible
for such purchases within a rolling twelve month period as follows: 1.00% on
sales up to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the
next $47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of a 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 a Fund and other 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 participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent 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 and grandchildren
under 21 years of age, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Funds at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
38
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------ ----------------
<S> <C>
First......................... 5.00%
Second........................ 4.00%
Third......................... 3.00%
Fourth........................ 2.50%
Fifth......................... 1.50%
Thereafter.................... None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan as described
under "Management of the Company -- Distributor" above. Additionally, the
Distributor may pay additional promotional incentives in the form of cash or
other compensation to authorized dealers that sell Class B shares of the Funds.
The combination of the CDSC and the distribution fee facilitates the ability of
the Company to sell the Class B shares without a sales charge being deducted at
the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will generally make payments to the Participating Dealers that handle the
purchases of such shares at the rate of up to 1.00% of the purchase price of
such shares at the time of purchase and expects to pay to Participating Dealers
most of its distribution fee, with respect to such shares, under the Rule 12b-1
Plan for such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum amount of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described under "Redemption of Shares". A shareholder,
or their representative, must notify the Company's Transfer Agent prior to the
time of redemption if such circumstances exist and the shareholder is eligible
for this waiver. The shareholder is responsible for providing sufficient
documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
39
<PAGE>
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Funds without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of a Fund at net asset value per share with no
initial sales charge. A Class C shareholder who has redeemed shares of a
Participating Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of a Fund with credit given for any CDSC paid upon
such redemption. The reinstatement privilege as to any specific Class A, Class B
or Class C shares must be exercised within 180 days of the redemption. The
Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is also offered to participants
in those eligible retirement plans held or administered by Van Kampen Trust for
repayment of principal (and interest) on their borrowings on such plan. See the
Statement of Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Investor Services. Investor Services acts as transfer agent
for the Company and performs bookkeeping, data processing and administration
services related to the maintenance of shareholder accounts. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from Investor Services showing any reinvestments
of dividends and capital gains distributions and any other activity in the
account since the preceding statement. Such shareholders also will receive
separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
40
<PAGE>
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested in shares of the same class of any Participating
Fund, so long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. 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 the 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 portfolio at its net asset value as of the payable date of the
distribution only if shares of such selected portfolio have been registered for
sale in the investor's state and are currently available for sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust 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.
EXCHANGE PRIVILEGE. Shares of the Funds may be exchanged for shares of the
same class of another Participating Fund based on the net asset value per share
of each Fund on the date of exchange, subject to certain limitations. Before
effecting an exchange, shareholders in the Company should obtain and read a
current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund 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.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take
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place at the relative net asset value per share of the shares next determined
after receipt of such request with adjustment for any additional sales charge.
Any shares exchanged begin earning dividends on the next business day after the
exchange is affected. If the exchanging shareholder does not have an account in
the Participating Fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary 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 dividend diversification options for the
new account, an exchanging shareholder must file a specific written request. The
Company reserves the right to reject any order to acquire its shares through
exchange. In addition, the Company may restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
SYSTEMATIC 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.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company 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 purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
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<PAGE>
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
www.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively "VK"), and the Funds employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of instructions communicated through the
internet. If reasonable procedures are employed, neither VK nor the Funds will
be liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Company c/o Van Kampen Investor Services
Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through a Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would 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. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received (less any applicable CDSC) by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charges, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 282-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason,
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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
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<PAGE>
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If an account has multiple
owners, Investor Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C
shares 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 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 death or initial determination of disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK") and the Company employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal
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<PAGE>
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 VK nor the Company will be liable for following instructions which it
reasonably believes to be genuine. VK and the Company may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the applicable Sub-Adviser select the brokers or dealers
that will execute the purchases and sales of investment securities for the
applicable Fund. The Adviser and the applicable Sub-Adviser may, consistent with
NASD rules, place portfolio orders with qualified broker-dealers who recommend
the applicable Fund to their clients or who act as agents in the purchase of
shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the applicable Sub-Adviser may allocate a portion of the
Company's portfolio brokerage transactions to Morgan Stanley & Co. Incorporated
("Morgan Stanley") and affiliates of the Adviser and the Sub-Advisers or broker
affiliates of Morgan Stanley under procedures adopted by the Board of Directors.
For such portfolio transactions, the commissions, fees or other remuneration
received by Morgan Stanley or such affiliates must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
for comparable transactions involving similar securities being purchased or sold
during a comparable period of time.
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<PAGE>
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. High portfolio turnover (i.e. 100% or more)
involves correspondingly greater transaction costs which will be borne directly
by a Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund. See "Financial
Highlights" above for the Funds' historical portfolio turnover rates.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
PERFORMANCE OF INVESTMENT SUB-ADVISERS
The Mid Cap Growth Fund was modeled after a portfolio of the MAS Funds,
which is currently managed by MAS. The MAS Portfolio has substantially the same
investment objective, policies and strategies as the Mid Cap Growth Fund. In
addition, the Adviser and MAS intend the Mid Cap Growth Fund to be managed by
the same personnel and to continue to have closely similar investment
strategies, techniques and characteristics as the corresponding MAS Portfolio.
Past investment performance of the MAS Portfolio, as shown in the table below,
may be relevant to your consideration of investment in the Mid Cap Growth Fund.
The investment performance of the MAS Portfolio is not necessarily indicative of
future performance of the Mid Cap Growth Fund. Also, the operating expenses of
the Mid Cap Growth Fund will be different from, and may be higher than, the
operating expenses of the MAS Portfolio. The investment performance of the MAS
Portfolio is provided merely to indicate the experience of MAS in managing a
similar investment portfolio.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the Mid Cap Growth Fund's projected operating expenses and
(i) with respect to the Class A shares, to take into account a maximum 5.75%
initial sales charge applicable to purchases of Class A shares of the Mid Cap
Growth Fund, (ii) with respect to Class B shares, to take into account the
applicable CDSC that is imposed if Class B shares of the Mid Cap Growth Fund are
redeemed within the year of their purchase indicated and (iii) with respect to
the Class C shares, to take into account a 1.00% CDSC that is imposed if Class C
shares of the Mid Cap Growth Fund are redeemed within one year of their
purchase. The data set forth below under the heading "Return Without Sales
Charge" is adjusted to reflect the Mid Cap Growth Fund's projected operating
expenses and not adjusted to take into account such sales charges.
TOTAL RETURN FOR THE MAS PORTFOLIO FOR GROWTH INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE MID CAP GROWTH FUND)
FOR THE PERIOD ENDED JUNE 30, 1998
(ADJUSTED TO REFLECT PROJECTED OPERATING EXPENSES AND, WHERE INDICATED, THE
SALES CHARGES OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS SINCE INCEPTION(1)
- ---------------------------------------------------------- --------- ----------- -------------------
<S> <C> <C> <C>
Class A (of 5.75%)........................................ 42.53% 22.61% 21.65%
Class B (of 5.00%)........................................ 45.48% 23.60% 22.34%
Class C (of 1.00%)........................................ 49.48% 23.73% 22.34%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ----------------------------------------------------------
<S> <C> <C> <C>
Class A................................................... 51.23% 24.07% 22.53%
Class B................................................... 50.48% 23.73% 22.34%
Class C................................................... 50.48% 23.73% 22.34%
</TABLE>
- --------------
(1) Commenced Operations on March 30, 1990.
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The past performance of the MAS Portfolio for Growth Institutional Class is
no guarantee of the future performance of the Mid Cap Growth Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Funds, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
Each of the Equity Growth and Mid Cap Growth Funds expects to distribute
substantially all of its net investment income in the form of annual dividends
and each of the Aggressive Equity, American Value, U.S. Real Estate and Value
Funds expects to distribute substantially all of its net investment income in
the form of quarterly dividends. Each of the Funds expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of a
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of a Fund
will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole.
Accordingly, net long-term and short-term capital gains, net income and
operating expenses will be determined separately for each Fund.
Each Fund has elected and qualified, and intends to continue to qualify each
year, for the special tax treatment afforded "regulated investment companies"
("RICs") under Subchapter M of the Code so that each will be relieved of federal
income tax on that part of its net investment income and net capital gain (the
excess of net long-term capital gain over net short-term capital loss, less any
available capital loss carryforward) which is distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held a Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. Each Fund will make
annual reports to
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shareholders of the federal income tax status of all distributions. See the
discussion below for a summary of the tax rates applicable to capital gains
(including capital gain dividends).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to continue to qualify as a RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by a Fund in October, November or
December that are payable as of a record date in such month and are paid at any
time during January of the following year are treated as having been paid by the
Fund and received by the shareholders on December 31st of the year in which they
are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Funds.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less, or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is at 35%. A special 28% tax rate may apply
to a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended June 30, 1998.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998 the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Funds have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act. Any person or organization owning 25% or
more of the outstanding shares of a Fund may be presumed to "control" (as that
term is defined in the 1940 Act) such Fund. As of September 3, 1998, no person
or organization owned 25% or more of the outstanding voting shares of any Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
48
<PAGE>
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Street, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
49
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
A-1
<PAGE>
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
- --------------------------------------------------------------------------------
VAN KAMPEN
AGGRESSIVE EQUITY FUND
AMERICAN VALUE FUND
EQUITY GROWTH FUND
MID CAP GROWTH FUND
U.S. REAL ESTATE FUND
VALUE FUND
PORTFOLIOS OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN ASIAN GROWTH FUND
VAN KAMPEN EMERGING MARKETS FUND
VAN KAMPEN GLOBAL EQUITY FUND
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
VAN KAMPEN INTERNATIONAL MAGNUM FUND
VAN KAMPEN JAPANESE EQUITY FUND
VAN KAMPEN LATIN AMERICAN FUND
PORTFOLIOS OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of the seven portfolios listed above (each a "Fund", and
together, the "Funds").
The Funds are designed to make available to retail investors the expertise
of Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator") and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser (the "Sub-Adviser") to the
Funds and Van Kampen Funds Inc. as the Funds' distributor (the "Distributor").
Shares are available through the Distributor and investment dealers, banks and
financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers"). As of the date of this
Prospectus, the Van Kampen Japanese Equity Fund is not offering shares.
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above. The Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................... 3
Fund Expenses.................................................... 5
Financial Highlights............................................. 8
Investment Objectives and Policies............................... 19
Additional Investment Information................................ 27
Investment Limitations........................................... 36
Management of the Company........................................ 37
Purchase of Shares............................................... 41
Shareholder Services............................................. 48
Redemption of Shares............................................. 50
Valuation of Shares.............................................. 52
Portfolio Transactions........................................... 53
Performance Information.......................................... 54
Dividends and Distributions...................................... 54
Taxes............................................................ 54
General Information.............................................. 55
Appendix A -- Description of Corporate Bond Ratings.............. A-1
</TABLE>
NO DEALER, SALES REPRESENTATIVE 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 MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR 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 TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
2
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-three portfolios which are designed
to offer investors a range of investment choices with Van Kampen Investment
Advisory Corp. (the "Adviser") providing services as adviser and administrator
and its affiliate, Morgan Stanley Asset Management Inc. ("MSAM" or the
"Sub-Adviser"), providing services as the sub-adviser. Van Kampen Funds Inc.
(the "Distributor") provides services as distributor to the Funds.
This Prospectus describes Class A, Class B and Class C shares of the seven
portfolios shown below. For ease of reference, the words "Van Kampen," which
begin the name of each portfolio, are not used throughout this Prospectus. The
investment objective of each Fund is as follows:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers. As of the date of this
Prospectus, the Japanese Equity Fund is not offering shares.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
There can be no assurance a Fund will achieve its investment objective.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
equity securities, which are subject to market risks that may cause their price
to fluctuate over time. The Funds described herein invest in securities of
foreign issuers. Securities of foreign issuers are subject to certain risks not
typically associated with domestic securities. See "Additional Investment
Information -- Foreign Investment" for more information. The Funds invest in
securities of issuers located in developing or emerging market countries, which
may impose greater liquidity risks and other risks not typically associated with
investing in the more established markets of developed countries. Investments,
particularly in such emerging market countries, may be in small- to medium-sized
companies, which are more vulnerable to risks than larger corporations,
including a higher degree of liquidity, financial, price volatility and other
risks than investments in the securities of larger corporations. The Emerging
Markets and Latin American Funds may invest in lower rated and unrated debt
securities (including in the case of the Latin American Fund, sovereign debt)
which are considered speculative in nature and involve a high degree of risk.
The Emerging Markets Fund may invest in equity securities of Russian companies.
The registration, clearing and settlement of securities transactions in Russia
are subject to significant risks not normally associated with securities
transactions in the United States and other more developed markets. See
"Additional Investment Information -- Russian Securities Transactions."
The Funds may invest in forward foreign currency exchange contracts and in
foreign currency exchange futures and options. The Emerging Markets and Latin
American Funds may engage in short selling. The Latin
3
<PAGE>
American Fund may borrow money for leverage purposes. In addition, each Fund may
invest in repurchase agreements, borrow money, lend its portfolio securities,
and purchase securities on a when-issued or delayed delivery basis. Each Fund
may invest in derivative instruments including options, futures and options on
futures and swaps. Each Fund may invest in securities that are neither listed on
a stock exchange nor traded over-the-counter, including private placement
securities. Such securities may be less liquid than publicly traded securities.
There are also risks associated with the non-diversified status of the Emerging
Markets, International Magnum and Latin American Funds. Each of these investment
strategies involves specific risks which are described under "Investment
Objectives and Policies" and "Additional Investment Information" herein and
under "Investment Objectives and Policies" in the Statement of Additional
Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value per share plus a maximum initial sales
charge of 5.75%, which initial sales charge may be reduced on certain larger
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Funds are offered at net asset value per share. Class B shares
are also subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of each
Fund, except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of each Fund, except that there is no minimum for automatic reinvestment
of dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
4
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL
ASIAN EMERGING GLOBAL EQUITY JAPANESE LATIN
GROWTH MARKETS EQUITY ALLOCATION INTERNATIONAL EQUITY AMERICAN
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND FUND MAGNUM FUND FUND FUND
- ----------------------------------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A........................ 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1)
Class B........................ None None None None None None None
Class C........................ None None None None None None None
Maximum Deferred Sales Load (as a
percentage of the lesser of
initial purchase price or current
market value)
Class A
For Purchases up to
$999,999................... None None None None None None None
For Purchases of $1,000,000
or more.................... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B........................ 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C........................ 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A........................ None None None None None None None
Class B........................ None None None None None None None
Class C........................ None None None None None None None
Redemption Fees
Class A........................ None None None None None None None
Class B........................ None None None None None None None
Class C........................ None None None None None None None
Exchange Fees
Class A........................ None None None None None None None
Class B........................ None None None None None None None
Class C........................ None None None None None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. See "Purchase of Shares."
(2) Purchases of Class A shares of the Funds which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Participating Funds (as defined under "Purchase of Shares -- Quantity
Discounts"), aggregate to $1 million or more are not subject to an initial
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Certain other
purchases are not subject to an initial sales charge. See "Purchase of
Shares."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds are subject to a maximum CDSC of 5.00% which decreases in steps to
0.00% after five years. See "Purchase of Shares."
(4) Purchases of Class C shares of the Funds are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. See "Purchase of Shares."
5
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
ANNUAL FUND OPERATING EXPENSES ASIAN EMERGING GLOBAL EQUITY INTERNATIONAL JAPANESE LATIN
(AS A PERCENTAGE OF AVERAGE GROWTH MARKETS EQUITY ALLOCATION MAGNUM EQUITY AMERICAN
DAILY NET ASSETS) FUND FUND FUND FUND FUND FUND FUND
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after
fee waiver) (5)
Class A..................... 0.69% 0.92% 1.00% 0.88% 0.63% 0.80% 1.09%
Class B..................... 0.69% 0.92% 1.00% 0.88% 0.63% 0.80% 1.09%
Class C..................... 0.69% 0.92% 1.00% 0.88% 0.63% 0.80% 1.09%
12b-1 Distribution and Service
Fees
Class A (6)................. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Class B (6)................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Class C (6)................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement) (5)
Class A..................... 0.96% 0.98% 0.45% 0.57% 0.77% 0.65% 0.76%
Class B..................... 0.96% 0.98% 0.45% 0.57% 0.77% 0.65% 0.76%
Class C..................... 0.96% 0.98% 0.45% 0.57% 0.77% 0.65% 0.76%
Total Operating Expenses (after
expense reimbursement and/or
fee waiver) (5)
Class A..................... 1.90% 2.15% 1.70% 1.70% 1.65% 1.70% 2.10%
Class B..................... 2.65% 2.90% 2.45% 2.45% 2.40% 2.45% 2.85%
Class C..................... 2.65% 2.90% 2.45% 2.45% 2.40% 2.45% 2.85%
</TABLE>
- ------------------
(5) Excluding the Global Equity Fund, the Adviser has agreed to waive a portion
of its advisory fees and/or to reimburse a portion of expenses of the
remaining Funds, if necessary, if total annual operating expenses (exclusive
of any non-U.S. country taxes) of such Funds, as a percentage of average
daily net assets, would exceed the percentages set forth in the table above.
The following table sets forth for each Fund (excluding the Global Equity
Fund which had no waivers or reimbursements in the last fiscal year)
investment advisory fees and expected total operating expenses absent fee
waivers and/or expense reimbursements. The Adviser in its discretion may
terminate voluntary fee waivers and/or reimbursements at any time. Absent
the waiver of fees or reimbursement of expenses, the amounts in the examples
below would be greater.
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY FEES OPERATING EXPENSES
----------------- ----------------------------------------
(ALL CLASSES) CLASS A CLASS B CLASS C
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Asian Growth Fund.................. 1.00% 2.21% 2.96% 2.96%
Emerging Markets Fund.............. 1.25% 2.60% 3.35% 3.34%
Global Equity Allocation Fund...... 1.00% 1.81% 2.56% 2.56%
International Magnum Fund.......... 0.80% 1.82% 2.57% 2.56%
Japanese Equity Fund............... 1.00% 1.90% 2.65% 2.65%
Latin American Fund................ 1.25% 2.41% 3.16% 3.16%
</TABLE>
With respect to Global Equity Fund, the Adviser has agreed to waive a portion
of its advisory fees and/or reimburse a portion of the Fund's expenses if the
total annual operating expenses (exclusive of any non-U.S. country taxes)
would exceed 1.80%, 2.55% and 2.55% for Class A, Class B and Class C shares,
respectively. For further information on Fund expenses, see "Management of
the Company."
(6) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly. The expenses and fees for the Asian Growth, Emerging Markets, Global
Equity Allocation, International Magnum and Latin American Funds are based on
actual figures for the fiscal year ended June 30, 1998, excluding any applicable
extraordinary expenses received in such Fund's last fiscal year. The expenses
and fees for the Global Equity are based on actual figures for the period
October 29, 1997 to June 30, 1998. The expenses and fees for Japanese Equity
Fund are based on the advisory agreement, the 12b-1 plans and estimates of other
expenses because the Fund had not commenced investment operations as of June 30,
1998.
6
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of each Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of each Fund, which have a CDSC, but
no initial sales charge and (iii) Class C shares of each Fund, which have a
CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
GLOBAL
ASIAN EMERGING GLOBAL EQUITY JAPANESE LATIN
GROWTH MARKETS EQUITY ALLOCATION INTERNATIONAL EQUITY AMERICAN
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND FUND MAGNUM FUND FUND FUND
- -------------------------------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A shares
1 Year...................... $ 76(1) $ 78(1) $ 74(1) $ 74(1) $ 73(1) $ 74(1) $ 78(1)
3 Years..................... 114 121 108 108 107 108 120
5 Years..................... 154 166 144 144 142 * 164
10 Years.................... 267 291 247 247 242 * 287
Class B shares
(Assuming complete redemption
at end of period)
1 Year...................... 77 79 75 75 74 75 79
3 Years..................... 112 120 106 106 105 106 118
5 Years..................... 156 168 146 146 143 * 165
10 Years (2)................ 280 304 262 260 255 * 299
(Assuming no redemption)
1 Year...................... 27 29 25 25 24 25 29
3 Years..................... 82 90 76 76 75 76 88
5 Years..................... 141 153 131 131 128 * 150
10 Years (2)................ 280 304 262 260 255 * 299
Class C shares
(Assuming complete redemption
immediately prior to the end of
period)
1 Year...................... 37 39 35 35 34 35 39
3 Years..................... 82 90 76 76 75 76 88
5 Years..................... 141 153 131 131 128 * 150
10 Years.................... 298 322 279 279 274 * 318
Class C shares
(Assuming no redemption)
1 Year...................... 27 29 25 25 24 25 29
3 Years..................... 82 90 76 76 75 76 88
5 Years..................... 141 153 131 131 128 * 150
10 Years.................... 298 322 279 279 274 * 318
</TABLE>
- ------------------
* Because the Japanese Equity Fund has not commenced investment operations as
of the date of this Prospectus, the Company has not projected expenses beyond
the three-year period shown.
(1) The example reflects Class A shares sold subject to the maximum 5.75%
initial sales charge. Certain large purchases may be subject to a reduced
initial sales charge. Purchases of Class A shares of the Funds which, when
combined with the value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
(2) The expenses shown reflect that Class B shares automatically convert to
Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Asian Growth, Emerging Markets, Global Equity, Global
Equity Allocation, International Magnum and Latin American Funds for each of the
periods presented. The financial highlights are part of the Company's financial
statements, which appear in the Company's June 30, 1998 Annual Report to
Shareholders. The financial statements are incorporated into the Company's
Statement of Additional Information. The foregoing Funds' financial highlights
for each of the periods presented have been audited by PricewaterhouseCoopers
LLP, whose report thereon (which was unqualified) is incorporated into the
Statement of Additional Information. Additional performance information about
the Company is contained in the Company's Annual Report and Semi-Annual Report.
The Annual Report, Semi-Annual Report and the Statement of Additional
Information are available at no cost from the Company at the address and
telephone number noted on the cover page of this Prospectus. The following
information should be read in conjunction with the financial statements and
notes thereto. Financial highlights are not presented for the Japanese Equity
Fund because it had not commenced investment operations as of June 30, 1998.
8
<PAGE>
FINANCIAL HIGHLIGHTS
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A -----------------------------
--------------------------------------------------------------- YEAR AUGUST
YEAR YEAR YEAR YEAR YEAR JUNE 23, ENDED YEAR 1, 1995+
ENDED ENDED ENDED ENDED ENDED 1993* JUNE ENDED TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994 30, 1993 1998# 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00 $ 12.00 $ 16.17 $ 16.81 $ 16.51
-------- -------- -------- -------- -------- -------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.04) (0.06) (0.04) -- (0.03) -- (0.10) (0.16) (0.03)
Net Realized and
Unrealized Gain
(Loss) (10.03) (0.14) 0.77 1.43 3.53 -- (9.74) (0.15) 0.33
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total From Investment
Operations (10.07) (0.20) 0.73 1.43 3.50 -- (9.84) (0.31) 0.30
-------- -------- -------- -------- -------- -------- ------- -------- --------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.49) -- -- -- -- --
In Excess of Net
Realized Gain (0.02) (0.33) -- (0.02) -- -- (0.02) (0.33) --
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total Distributions (0.02) (0.33) -- (0.51) -- -- (0.02) (0.33) --
-------- -------- -------- -------- -------- -------- ------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 6.53 $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00 $ 6.31 $ 16.17 $ 16.81
-------- -------- -------- -------- -------- -------- ------- -------- --------
-------- -------- -------- -------- -------- -------- ------- -------- --------
TOTAL RETURN (1) (60.57)% (1.10)% 4.45% 9.50% 29.17% 0.00% (60.89)% (1.79)% 1.82%
-------- -------- -------- -------- -------- -------- ------- -------- --------
-------- -------- -------- -------- -------- -------- ------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 47,128 $175,440 $248,009 $178,667 $138,212 $ 11,770 $26,126 $ 62,786 $ 52,853
Ratio of Expenses to
Average Net Assets 1.90% 1.84% 1.88% 1.90% 1.90% 1.90%** 2.65% 2.59% 2.61%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.39)% (0.31)% (0.16)% 0.04% (0.24)% (0.81)%** (1.01)% (1.04)% (0.52)%**
Portfolio Turnover Rate 130% 74% 38% 34% 34% 0% 130% 74% 38%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Loss $ 0.01 -- -- -- $ 0.03 $ 0.01 $ 0.02 -- --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.21% -- -- -- 2.17% 11.83%** 2.96% -- --
Net Investment Income
(Loss) to Average Net
Assets (0.53)% -- -- -- (0.51)% (10.74)%** (1.15)% -- --
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 1.90% -- -- -- -- -- 2.65% -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for a periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------
JUNE 23,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE
RATIOS 1998# 1997 1996 1995 1994 30, 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00 $ 12.00
----------- ----------- ---------- ----------- ----------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.12) (0.21) (0.13) (0.12) (0.10) --
Net Realized and Unrealized
Gain (Loss) (9.71) (0.10) 0.72 1.42 3.50 --
----------- ----------- ---------- ----------- ----------- ---------
Total From Investment
Operations (9.83) (0.31) 0.59 1.30 3.40 --
----------- ----------- ---------- ----------- ----------- ---------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.49) -- --
In Excess of Net Realized
Gain (0.02) (0.33) -- (0.02) -- --
----------- ----------- ---------- ----------- ----------- ---------
Total Distributions (0.02) (0.33) -- (0.51) -- --
----------- ----------- ---------- ----------- ----------- ---------
NET ASSET VALUE, END OF PERIOD $ 6.29 $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00
----------- ----------- ---------- ----------- ----------- ---------
----------- ----------- ---------- ----------- ----------- ---------
TOTAL RETURN (1) (60.88)% (1.79)% 3.64% 8.71% 28.33% 0.00%
----------- ----------- ---------- ----------- ----------- ---------
----------- ----------- ---------- ----------- ----------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 28,823 $ 114,460 $ 168,070 $ 139,497 $ 116,889 $ 8,491
Ratio of Expenses to Average
Net Assets 2.65% 2.59% 2.63% 2.63% 2.65% 2.65%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (1.17)% (1.06)% (0.94)% (0.77)% (0.99)% (1.56)%**
Portfolio Turnover Rate 130% 74% 38% 34% 34% 0%
- ---------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss $ 0.01 -- -- -- $ 0.03 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.96% -- -- -- 2.92% 12.64%**
Net Investment Income (Loss)
to Average Net Assets (1.31)% -- -- -- (1.26)% (11.55)%**
Ratio of Expenses to Average
Net Assets excluding country
tax expense 2.65% -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for a periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
10
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A ----------------------------------
------------------------------------------------- AUGUST
YEAR JULY 6, 1, 1995+
YEAR ENDED YEAR ENDED ENDED 1994* YEAR ENDED YEAR ENDED TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1998# 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.47 $ 12.06 $ 10.61 $ 12.00 $ 13.24 $ 11.94 $ 10.91
---------- ---------- --------- ---------- ---------- ---------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) -- 0.01 0.05 0.05 (0.07) (0.03) 0.01
Net Realized and
Unrealized Gain
(Loss) (4.49) 1.57 1.44 (1.44) (4.39) 1.50 1.02
---------- ---------- --------- ---------- ---------- ---------- --------
Total From Investment
Operations (4.49) 1.58 1.49 (1.39) (4.46) 1.47 1.03
---------- ---------- --------- ---------- ---------- ---------- --------
DISTRIBUTIONS
Net Investment Income -- -- (0.04) -- -- -- --
In Excess of Net
Investment Income -- (0.04) -- -- -- (0.04) --
Net Realized Gain (0.73) (0.13) -- -- (0.73) (0.13) --
In Excess of Net
Realized Gain (0.27) -- -- -- (0.27) -- --
---------- ---------- --------- ---------- ---------- ---------- --------
Total Distributions (1.00) (0.17) (0.04) -- (1.00) (0.17) --
---------- ---------- --------- ---------- ---------- ---------- --------
NET ASSET VALUE, END OF
PERIOD $ 7.98 $ 13.47 $ 12.06 $ 10.61 $ 7.78 $ 13.24 $ 11.94
---------- ---------- --------- ---------- ---------- ---------- --------
---------- ---------- --------- ---------- ---------- ---------- --------
TOTAL RETURN (1) (34.31)% 13.54% 14.16% (11.58)% (34.76)% 12.67% 9.45%
---------- ---------- --------- ---------- ---------- ---------- --------
---------- ---------- --------- ---------- ---------- ---------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 74,959 $ 119,022 $ 114,850 $ 26,091 $ 36,423 $ 35,966 $ 10,416
Ratio of Expenses to
Average Net Assets 2.27% 2.21% 2.16% 2.33%** 3.02% 2.96% 2.91%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.04% (0.06)% 0.93% 0.81%** (0.67)% (0.64)% 0.30%**
Portfolio Turnover Rate 99% 82% 42% 32% 99% 82% 42%
- ------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.03 $ 0.02 $ 0.04 $ 0.03 $ 0.01 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.60% 2.41% 2.56% 3.10%** 3.35% 3.17% 3.31%**
Net Investment Income
(Loss) to Average Net
Assets (0.24)% (0.27)% 0.53% 0.04%** (0.97)% (0.87)% (0.10)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.15% 2.15% 2.15% 2.15%** 2.90% 2.90% 2.90%**
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
11
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.26 $ 11.93 $ 10.53 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.08) (0.08) (0.01) --
Net Realized and Unrealized Gain
(Loss) (4.39) 1.55 1.41 (1.47)
------- ------- ------- -------
Total From Investment Operations (4.47) 1.47 1.40 (1.47)
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- -- -- --
In Excess of Net Investment Income -- (0.01) -- --
Net Realized Gain (0.73) (0.13) -- --
In Excess of Net Realized Gain (0.27) -- -- --
------- ------- ------- -------
Total Distributions (1.00) (0.14) -- --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 7.79 $ 13.26 $ 11.93 $ 10.53
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1) (34.73)% 12.66% 13.30% (12.25)%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 28,680 $ 57,958 $ 43,601 $ 22,245
Ratio of Expenses to Average Net
Assets 3.01% 2.96% 2.91% 3.08%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.76)% (0.79)% (0.11)% 0.06%**
Portfolio Turnover Rate 99% 82% 42% 32%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.03 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.34% 3.17% 3.34% 3.90%**
Net Investment Income (Loss) to
Average Net Assets (1.03)% (1.00)% (0.54)% (0.76)%**
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.90% 2.90% 2.90% 2.90%**
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
12
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- --------- ---------
OCTOBER OCTOBER OCTOBER
29, 1997* 29, 1997* 29, 1997*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998 30, 1998 30, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.01 0.01
Net Realized and Unrealized Gain 1.08 1.07 1.06
--------- --------- ---------
Total From Investment Operations 1.14 1.08 1.07
--------- --------- ---------
DISTRIBUTIONS
Net Investment Income (0.02) -- --
Net Realized Gain -- -- --
--------- --------- ---------
Total Distributions (0.02) -- --
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.12 $ 11.08 $ 11.07
--------- --------- ---------
--------- --------- ---------
TOTAL RETURN (1) 11.38% 10.84% 10.74%
--------- --------- ---------
--------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 80,508 $ 623,229 $ 69,572
Ratio of Expenses to Average Net Assets 1.70%** 2.45%** 2.45%**
Ratio of Net Investment Income to Average Net Assets 0.88%** 0.12%** 0.13%**
Portfolio Turnover Rate 4% 4% 4%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for a periods of less than one year are not
annualized.
13
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------------------- --------------------------------
YEAR YEAR YEAR YEAR YEAR JANUARY YEAR YEAR AUGUST
ENDED ENDED ENDED ENDED ENDED 4, 1993* ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 1994 30, 1993 1998# 1997 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 11.09 $ 10.00 $ 16.15 $ 14.46 $ 13.01
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.21 0.10 0.19 0.12 0.10 0.04 0.09 (0.05) 0.30
Net Realized and
Unrealized Gain 2.07 2.76 2.82 0.67 0.90 1.05 2.01 2.73 1.98
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 2.28 2.86 3.01 0.79 1.00 1.09 2.10 2.68 2.28
-------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.35) (0.55) (0.39) -- (0.03) -- (0.28) (0.50) (0.35)
In Excess of Net
Investment Income -- -- -- (0.05) -- -- -- -- --
Net Realized Gain (1.83) (0.49) (0.47) (0.13) (0.07) -- (1.83) (0.49) (0.48)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.18) (1.04) (0.86) (0.18) (0.10) -- (2.11) (0.99) (0.83)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 16.67 $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 11.09 $ 16.14 $ 16.15 $ 14.46
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 16.17% 20.61% 24.62% 6.69% 9.02% 10.90% 15.33% 19.64% 18.08%
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $261,633 $ 72,704 $ 63,706 $ 42,586 $ 33,425 $ 10,434 $225,797 $ 38,962 $ 14,786
Ratio of Expenses to
Average Net Assets 1.61% 1.70% 1.70% 1.70% 1.70% 1.70%** 2.35% 2.45% 2.45%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 1.30% 0.59% 0.71% 1.01% 0.98% 1.04%** 0.60% (0.11)% 0.45%**
Portfolio Turnover Rate 108% 45% 44% 39% 30% 14% 108% 45% 44%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.03 $ 0.10 $ 0.04 $ 0.09 $ 0.08 $ 0.02 $ 0.09 $ 0.22
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.62% 1.90% 2.06% 2.03% 2.58% 3.65%** 2.36% 2.65% 2.81%**
Net Investment Income
(Loss) to Average Net
Assets 1.30% 0.40% 0.35% 0.68% 0.10% (0.91)%** 0.60% (0.30)% 0.09%**
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return to calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
14
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR JANUARY
ENDED ENDED ENDED ENDED ENDED 4, 1993*
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE
SELECTED PER SHARE DATA AND RATIOS 1998# 1997 1996 1995 1994 30, 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.24 $ 14.49 $ 12.43 $ 11.90 $ 11.05 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.08 (0.03) 0.12 0.04 0.06 0.01
Net Realized and Unrealized Gain 2.05 2.73 2.75 0.65 0.86 1.04
-------- -------- -------- -------- -------- --------
Total From Investment Operations 2.13 2.70 2.87 0.69 0.92 1.05
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.24) (0.46) (0.33) -- -- --
In Excess of Net Investment Income -- -- -- (0.03) -- --
Net Realized Gain (1.83) (0.49) (0.48) (0.13) (0.07) --
-------- -------- -------- -------- -------- --------
Total Distributions (2.07) (0.95) (0.81) (0.16) (0.07) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 16.30 $ 16.24 $ 14.49 $ 12.43 $ 11.90 $ 11.05
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 15.37% 19.69% 23.65% 5.84% 8.34% 10.50%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $108,650 $ 78,199 $ 63,025 $ 40,460 $ 29,892 $ 6,995
Ratio of Expenses to Average Net Assets 2.55% 2.45% 2.45% 2.45% 2.45% 2.45%**
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.52% (0.16)% (0.04)% 0.25% 0.23% 0.29%**
Portfolio Turnover Rate 108% 45% 44% 39% 30% 14%
- ---------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.03 $ 1.16 $ 0.05 $ 0.12 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.56% 2.65% 2.81% 2.78% 3.34% 4.40%**
Net Investment Income (Loss) to
Average Net Assets 0.52% (0.34)% (0.40)% (0.08)% (0.66)% (1.66)%**
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for a periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
15
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- --------------------- ---------------------
YEAR JULY 1, YEAR JULY 1, YEAR JULY 1,
ENDED 1996* TO ENDED 1996* TO ENDED 1996* TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1998# 1997 1998# 1997 1998# 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.91 $ 12.00 $ 13.84 $ 12.00 $ 13.83 $ 12.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.17 0.05 0.10 0.05 0.06
Net Realized and Unrealized Gain 0.96 1.88 0.97 1.85 0.99 1.88
--------- --------- --------- --------- --------- ---------
Total From Investment Operations 1.13 2.05 1.02 1.95 1.04 1.94
--------- --------- --------- --------- --------- ---------
DISTRIBUTION:
Net Investment Income (0.18) (0.13) (0.13) (0.10) (0.08) (0.10)
Net Realized Gain (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
--------- --------- --------- --------- --------- ---------
Total Distributions (0.19) (0.14) (0.14) (0.11) (0.09) (0.11)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 14.85 $ 13.91 $ 14.72 $ 13.84 $ 14.78 $ 13.83
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN (1) 8.32% 17.30% 7.55% 16.40% 7.55% 16.27%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 66,817 $ 21,961 $ 51,541 $ 18,215 $ 15,520 $ 9,156
Ratio of Expenses to Average Net Assets 1.65% 1.65%** 2.40% 2.40%** 2.40% 2.40%**
Ratio of Net Investment Income to
Average Net Assets 1.19% 1.39%** 0.40% 0.54%** 0.36% 0.29%**
Portfolio Turnover Rate 35% 22% 35% 22% 35% 22%
- ----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.11 $ 0.02 $ 0.17 $ 0.02 $ 0.21
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.82% 2.50%** 2.57% 3.34%** 2.56% 3.45%**
Net Investment Income (Loss) to
Average Net Assets 1.02% 0.52%** 0.23% (0.42)%** 0.20% (0.77)%**
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
16
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------- -------------------------------------
JULY 6, AUGUST 1,
YEAR ENDED YEAR ENDED YEAR ENDED 1994* YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1995 1998# 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 17.39 $ 12.63 $ 9.08 $ 12.00 $ 16.99 $ 12.45 $ 9.58
----------- ----------- ---------- ----------- ----------- ----------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.01) 0.02 0.10 (0.02) (0.08) (0.03) 0.03
Net Realized and Unrealized
Gain (Loss) (2.73) 6.46 3.47 (2.70) (2.65) 6.28 2.84
----------- ----------- ---------- ----------- ----------- ----------- ---------
Total From Investment
Operations (2.74) 6.48 3.57 (2.72) (2.73) 6.25 2.87
----------- ----------- ---------- ----------- ----------- ----------- ---------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) -- -- -- --
In Excess of Net Investment
Income -- (0.09) -- -- -- (0.08) --
Net Realized Gain (1.92) (1.63) -- -- (1.92) (1.63) --
In Excess of Net Realized
Gain (1.31) -- -- -- (1.31) -- --
Return of Capital -- -- -- (0.20) -- -- --
----------- ----------- ---------- ----------- ----------- ----------- ---------
Total Distributions (3.23) (1.72) (0.02) (0.20) (3.23) (1.71) --
----------- ----------- ---------- ----------- ----------- ----------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.42 $ 17.39 $ 12.63 $ 9.08 $ 11.03 $ 16.99 $ 12.45
----------- ----------- ---------- ----------- ----------- ----------- ---------
----------- ----------- ---------- ----------- ----------- ----------- ---------
TOTAL RETURN (1) (17.37)% 57.32% 39.35% (23.07)% (17.82)% 56.17% 29.26%
----------- ----------- ---------- ----------- ----------- ----------- ---------
----------- ----------- ---------- ----------- ----------- ----------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 44,439 $ 84,401 $ 18,701 $ 7,658 $ 24,206 $ 14,314 $ 2,041
Ratio of Expenses to Average
Net Assets 2.25% 2.24% 2.11% 2.46%** 2.99% 2.99% 2.87%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.09)% (0.08)% 1.18% (0.44)%** (0.58)% (0.78)% 0.88%**
Portfolio Turnover Rate 249% 241% 131% 107% 249% 241% 131%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.10 $ 0.09 $ 0.13 $ 0.02 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.41% 2.77% 3.28% 4.30%** 3.16% 3.55% 3.89%**
Net Investment Income (Loss)
to Average Net Assets (0.24)% (0.61)% 0.01% (2.26)%** (0.73)% (1.34)% (0.14)%**
Ratio of Expenses to Average
Net Assets excluding country
tax expense 2.10% 2.10% 2.10% 2.10%** 2.85% 2.85% 2.85%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
17
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------
YEAR YEAR YEAR JULY 6,
ENDED ENDED ENDED 1994*
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1998# 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.01 $ 12.43 $ 8.99 $ 12.00
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.11) (0.07) 0.04 (0.08)
Net Realized and Unrealized Gain
(Loss) (2.63) 6.31 3.40 (2.73)
--------- --------- --------- ---------
Total From Investment Operations (2.74) 6.24 3.44 (2.81)
--------- --------- --------- ---------
DISTRIBUTIONS
In Excess of Net Investment Income -- (0.03) -- --
Net Realized Gain (1.92) (1.63) -- --
In Excess of Net Realized Gain (1.31) -- -- --
Return of Capital -- -- -- (0.20)
--------- --------- --------- ---------
Total Distributions (3.23) (1.66) -- (0.20)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.04 $ 17.01 $ 12.43 $ 8.99
--------- --------- --------- ---------
--------- --------- --------- ---------
TOTAL RETURN (1) (17.86)% 56.04% 38.26% (23.83)%
--------- --------- --------- ---------
--------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 14,577 $ 20,345 $ 6,780 $ 4,085
Ratio of Expenses to Average Net Assets 3.00% 2.99% 2.86% 3.20%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.77)% (0.79)% 0.42% (1.16)%**
Portfolio Turnover Rate 249% 241% 131% 107%
- ----------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.16% 3.56% 4.06% 5.20%**
Net Investment Income (Loss) to
Average Net Assets (0.93)% (1.36)% (0.78)% (3.16)%**
Ratio of Expenses to Average Net Assets
excluding country tax expense 2.85% 2.85% 2.85% 2.85%**
- ----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
18
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies such Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance that a Fund's investment objective will be
attained. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. For each of the Funds, other
than the Japanese Equity and Latin American Funds, equity securities include
common and preferred stocks, convertible securities, and rights and warrants to
purchase common stocks. For more information about certain investment practices
of the Funds, see "Additional Investment Information" below and "Investment
Objectives and Policies" in the Statement of Additional Information.
THE ASIAN GROWTH FUND
The investment objective of the Asian Growth Fund is long-term capital
appreciation through investment primarily in equity securities of Asian issuers,
excluding Japan. The production of any current income is incidental to this
objective. The Fund seeks to achieve its objective by investing, under normal
market conditions, at least 65% of the value of its total assets in equity
securities which are traded on recognized stock exchanges of the countries in
Asia described below and in equity securities of companies organized under the
laws of an Asian country whose business is conducted principally in Asia. The
Fund does not intend to invest in securities which are primarily traded in
markets in Japan or in companies organized under the laws of Japan. The Fund may
also invest in sponsored or unsponsored depositary receipts, including American
Depositary Receipts ("ADRs") of Asian issuers that are traded on stock exchanges
in the United States.
The Asian Growth Fund will invest in countries having more established
markets in the Asian region. The Asian countries to be represented in the Fund
will consist of three or more of the following countries: Hong Kong (China),
Singapore, Malaysia, Thailand, the Philippines and Indonesia. The Fund may also
invest in common stocks traded on markets in mainland China, Taiwan, South
Korea, India, Pakistan, Sri Lanka and other developing markets that are open to
foreign investment. There is no requirement that the Fund, at any given time,
invest in any one particular country or in all of the countries listed above or
in any other Asian countries. Allocation of investments among the various
countries will depend on the relative attractiveness of the stocks of issuers in
the respective countries. Government regulation and restrictions in many of the
countries of interest may limit the amount, mode and extent of investment in
companies in such countries.
The Adviser's approach in selecting investments for the Asian Growth Fund is
oriented to individual stock selection and is value driven. In selecting stocks
for the Fund, the Adviser initially identifies those stocks which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues, and then evaluates the future value of such stocks by running the
results of an in-depth study of the issuer through a dividend discount model.
The Adviser utilizes the research of a number of sources, including its
affiliate in Geneva, Switzerland, Morgan Stanley Capital International ("MSCI"),
in identifying attractive securities, and applies a number of proprietary
screening criteria to identify those securities it believes to be undervalued.
Fund holdings are regularly reviewed and subjected to fundamental analysis to
determine whether they continue to conform to the Adviser's value criteria.
Those which no longer conform are sold. In selecting industries and particular
issuers, the Adviser will evaluate costs of labor and raw materials, access to
technology, export of products and government regulation, as well as the assets,
revenues and earnings of issuers. Although the Fund seeks to invest in larger
companies, it may invest in small- and medium-sized companies that, in the
Adviser's view, have potential for growth. The Fund may invest in equity
securities of smaller capitalization companies, which may involve a higher
degree of risk and price volatility than investment in securities of larger
companies. The Fund's investments will include securities of issuers located in
developing countries and traded in emerging markets. These securities pose
greater liquidity risks and other risks than securities of companies located in
developed countries and traded in more established markets.
Although the Asian Growth Fund intends to invest primarily in securities
listed on stock exchanges, it may also invest in securities traded in
over-the-counter markets and, to a limited extent, in non-publicly traded
securities. Securities traded in over-the-counter markets and non-publicly
traded securities pose liquidity risks.
19
<PAGE>
Under normal circumstances, at least 65% of the total assets of the Asian
Growth Fund will be invested in equity securities of issuers in Asian countries,
excluding Japan. Any remaining assets of the Fund will be kept in any
combination of debt instruments, bills and bonds of governmental entities in
Asia and the United States, in notes, debentures, and bonds of companies in Asia
and in money market instruments in the United States. Debt securities
convertible into common stocks will be investment grade (rated in one of the
four highest rating categories by an internationally recognized statistical
rating organization) or, if unrated, will be of comparable quality as determined
by the Adviser under the supervision of the Board of Directors. Pending
investment or settlement, and for liquidity purposes, the Fund may invest in
domestic, Eurodollar and foreign short-term money market instruments. For
temporary defensive purposes, the Fund may invest a portion or all of its assets
in money market instruments and short- and medium-term debt securities that the
Adviser believes to be of high quality or hold cash. The Fund may enter into
forward foreign currency exchange contracts and invest in derivative
instruments. Because of the lack of hedging facilities in the currency markets
of Asia, no active currency hedging strategy is anticipated currently. Instead,
each investment will be considered on a total currency adjusted basis with the
U.S. Dollar as a base currency.
For further information about the foregoing and certain additional
investment practices of the Asian Growth Fund, see "Additional Investment
Information" below.
THE EMERGING MARKETS FUND
The investment objective of the Emerging Markets Fund is to provide
long-term capital appreciation by investing primarily in equity securities of
emerging country issuers. Under normal conditions, at least 65% of the Fund's
total assets will be invested in emerging country equity securities. As used in
this Prospectus, the term "emerging markets" applies to any country which, in
the opinion of the Adviser, is generally considered to be an emerging or
developing country by the international financial community, including the
International Bank for Reconstruction and Development (more commonly known as
The World Bank) and the International Finance Corporation. There are currently
over 130 countries which, in the opinion of the Adviser, are generally
considered to be emerging or developing countries by the international financial
community, approximately 40 of which currently have stock markets. These
countries generally include every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most nations located in Western
Europe. Currently, investing in many emerging markets is not feasible or may
involve unacceptable political risks. The Fund will focus its investments on
those emerging market countries in which it believes the economics are
developing strongly and in which the markets are becoming more sophisticated.
The Fund intends to invest primarily in some or all of the following countries:
Argentina
Botswana
Brazil
Chile
China (mainland and
Hong Kong)
Colombia
Egypt
Ghana
Greece
Hungary
India
Indonesia
Israel
Jamaica
Jordan
Kenya
Malaysia
Mexico
Morocco
Nigeria
Pakistan
Peru
Philippines
Poland
Portugal
Russia
South Africa
South Korea
Sri Lanka
Taiwan
Thailand
Turkey
Venezuela
Zimbabwe
As markets in other countries develop, the Emerging Markets Fund expects to
expand and further diversify the emerging markets countries in which it invests.
An emerging markets security is one issued by a company that, in the opinion of
the Adviser, has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging markets country; (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging markets countries;
or (iii) it is organized under the laws of, and has a principal office in, an
emerging markets country. The Adviser will base determinations as to eligibility
on publicly available information and inquiries made to the companies.
To the extent that the Emerging Markets Fund's assets are not invested in
emerging country equity securities, the remainder of the assets may be invested
in (i) debt securities denominated in the currency of an
20
<PAGE>
emerging country or issued or guaranteed by an emerging country company or the
government of an emerging country; (ii) equity or debt securities of corporate
or governmental issuers located in industrialized countries; and (iii)
short-term and medium-term debt securities of the type described below under
"Additional Investment Information -- Temporary Investments." The Fund's assets
may be invested in debt securities when the Fund believes that, based upon
factors such as relative interest rate levels and foreign exchange rates, such
debt securities offer opportunities for long-term capital appreciation. It is
likely that many of the debt securities in which the Fund will invest will be
unrated, and whether or not rated, such securities may have speculative
characteristics. When deemed appropriate by the Adviser, the Fund may invest up
to 10% of its total assets (measured at the time of the investment) in lower
quality debt securities. Lower quality debt securities, also known as "junk
bonds," are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than those of higher
quality securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. Securities in the
lowest quality category may present the risk of default, or may be in default.
The Emerging Markets Fund may invest indirectly in securities of emerging
country issuers through sponsored or unsponsored depositary receipts, including
ADRs. The Fund may also invest in non-publicly traded securities, private
placements and restricted securities. The Fund may enter into short sales,
forward foreign currency exchange contracts and instruments. For temporary
defensive purposes, the Fund may invest a portion or all of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash.
For further information about the foregoing and certain additional
investment practices of the Emerging Markets Fund, including the particular
risks associated with Russian Securities, see "Additional Investment
Information" below.
THE GLOBAL EQUITY FUND
The Global Equity Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including U.S.
issuers. The Fund may invest in American, global or other types of depositary
receipts. The Fund also may invest in equity-linked securities. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
equity securities of issuers located in at least three different countries. The
Adviser expects that, under normal circumstances, at least 20% of the Fund's
total assets will be invested in the common stocks of U.S. issuers. The
remainder of the Fund will be invested in issuers located throughout the world,
including those located in emerging markets. Securities in emerging markets may
not be as liquid as those in developed markets and pose certain additional
risks. See "The Emerging Markets Fund," above for a discussion of emerging
markets. Although the Fund intends to invest primarily in securities listed on
stock exchanges, it will also invest in securities traded in over-the-counter
markets. The Fund may invest in forward foreign currency exchange contracts,
reverse repurchase agreements, derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. For temporary defensive purposes, the Fund may invest a
portion or all of its assets in money market instruments and short-term and
medium-term debt securities as described below under "Additional Investment
Information -- Temporary Investments."
The Adviser's approach in selecting investments for the Fund is oriented
toward individual stock selection, and is value driven. The Adviser initially
identifies those stocks which it believes to be undervalued in relation to the
issuer's cash flow, earnings and dividends. The Adviser utilizes the research
from a number of sources, including MSCI, in identifying attractive securities,
and applies a number of proprietary screening criteria to identify those
securities it believes to be undervalued. Fund holdings are regularly reviewed
and subjected to fundamental analysis to determine whether they continue to
conform to the Adviser's value criteria. Securities which no longer conform to
such value criteria are sold.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
21
<PAGE>
THE GLOBAL EQUITY ALLOCATION FUND
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in equity securities of U.S. and
non-U.S. issuers in accordance with country weightings determined by the Adviser
and with stock selection within each country designed to replicate a broad
market index. The Fund will, under normal market conditions, invest at least 65%
of the value of its total assets in equity securities of issuers in at least
three different countries. The Adviser utilizes a "top-down" approach in
selecting investments for the Fund that emphasizes country selection and
weighting rather than individual stock selection. This approach reflects the
Adviser's philosophy for this Fund that a diversified selection of securities
representing exposure to world markets based upon the economic outlook and
current valuation levels for each country is an effective way to maximize the
return and minimize the risk associated with global investment.
The Adviser determines country allocations for the Global Equity Allocation
Fund on an ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The Fund will invest in the United States and
other industrialized countries throughout the world that comprise the MSCI World
Index. As of the date of this Prospectus, countries comprising the MSCI World
Index included: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong (China), Ireland, Italy, Japan, Malaysia, the Netherlands,
New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom
and the United States. In addition, the Fund may invest a portion of its assets
in emerging country equity securities, which are described in detail in the
discussion of the Emerging Markets Fund, above. The Adviser intends to use the
same criteria as used for the Emerging Markets Fund in selecting emerging market
securities for investment. As of the date of this Prospectus, the Fund intends
to invest in some or all of the following emerging markets: Argentina,
Indonesia, Portugal, South Africa, Brazil, Malaysia, Philippines, Thailand,
India, Mexico, South Korea and Turkey.
By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are then
used to determine what the Adviser believes to be a fair value for the stock
market of each country. Discrepancies between actual value and fair value, as
determined by the Adviser, provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
Adviser's purchasing-power parity exchange rate model to arrive at an expected
total return in U.S. Dollars. The final country allocation decision is then
reached by considering the expected total return in light of various country
specific considerations such as market size, volatility, liquidity and country
risk.
Within a particular country, investments are made through the purchase of
common stocks which, in the aggregate, replicate a broad market index, which in
most cases will be the MSCI Index for the particular country. The MSCI Indices
measure the performance of stock markets worldwide. Companies included in the
MSCI country index replicate the industry composition of the local market and
are a representative sampling of large, medium and small companies, subject to
liquidity. Non-domiciled companies traded on the local exchange and companies
with restricted float due to dominant shareholders or cross-ownership are
avoided. The Adviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Fund. Debt
securities convertible into common stocks will be investment grade (rated in one
of the four highest rating categories by a nationally recognized statistical
rating organization (an "NRSRO")) or, if unrated, will be of comparable quality
as determined by the Adviser under the supervision of the Board of Directors.
Indexation of the Fund's stock selection reduces stock-specific risk through
diversification and minimizes transaction costs, which can be substantial in
foreign markets.
The Global Equity Allocation Fund will normally purchase common stocks
listed on a major stock exchange in the subject country. The Global Equity
Allocation Fund may invest in non-publicly traded securities, private
placements, restricted securities and derivative instruments. For temporary
defensive purposes, the Fund may invest a portion or all of its assets in money
market instruments and short- and medium-term debt securities as described below
under "Additional Investment Information -- Temporary Investments."
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
22
<PAGE>
THE INTERNATIONAL MAGNUM FUND
The investment objective of the International Magnum Fund is to provide
long-term capital appreciation. The production of any current income is
incidental to this objective. The Fund seeks to achieve its objective by
investing primarily in equity securities of non-U.S. issuers in accordance with
the EAFE country (defined below) weightings determined by the Adviser. The
equity securities in which the Fund may invest may be denominated in any
currency.
The countries in which the International Magnum Fund will invest are those
comprising the MSCI EAFE Index (the "Index"), which currently includes
Australia, Japan, New Zealand, most nations located in Western Europe and
certain developed countries in Asia, such as Hong Kong (China) and Singapore
(each an "EAFE country," and collectively the "EAFE countries"). At least 65% of
the total assets of the Fund will be invested in equity securities of issuers in
at least three different EAFE countries under normal circumstances. In addition,
the Fund may invest in a foreign country when it has been announced publicly
that it will be added to the Index.
By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on comparative interest rates, currencies,
corporate profits and economic growth among the various regions represented in
the Index. These projections will be used to establish regional allocation
strategies. Within these regional allocations, the Adviser then selects equity
securities among issuers of a region.
The Adviser's approach in selecting among equity securities within a region
comprised of EAFE countries is oriented to individual stock selection and is
value driven. The Adviser identifies those equity securities which it believes
to be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. In selecting investments, the Adviser utilizes the research of a
number of sources, including MSCI. Fund holdings are regularly reviewed and
subjected to fundamental analysis to determine whether they continue to conform
to the Adviser's investment criteria. Equity securities which no longer conform
to such investment criteria will be sold.
Although the International Magnum Fund intends to invest primarily in equity
securities listed on a stock exchange in an EAFE country, the Fund may invest in
equity securities that are traded over the counter or that are not admitted to
listing on a stock exchange or dealt in on a regulated market. As a result of
the absence of a public trading market, such securities may pose liquidity
risks. The Fund may also invest in private placements or initial public
offerings in the form of oversubscriptions. Such investments generally entail
short-term liquidity risks.
The International Magnum Fund may invest up to 10% of its total assets in
(i) investment funds with investment objectives similar to that of the Fund and
(ii) for temporary purposes, money market funds and pooled investment vehicles.
If the Fund invests in other investment funds, stockholders will bear not only
their proportionate share of the expenses of the Fund (including operating
expenses and fees of the Adviser), but also will indirectly bear similar
expenses of the underlying investment fund. The Fund may invest in forward
foreign currency contracts, derivatives, when-issued and delayed delivery
securities and non-publicly traded securities including private placements and
restricted securities.
Although the International Magnum Fund anticipates being fully invested in
equity securities of EAFE countries, the Fund may invest, under normal
circumstances for cash management purposes, up to 35% of its total assets in
certain short-term (less than twelve months to maturity) and medium-term (not
greater than five years to maturity) debt securities, money market instruments
or hold cash. For temporary defensive purposes, the Fund may invest a portion or
all of its assets in money market instruments and short and medium-term debt
securities described below under "Additional Investment Information -- Temporary
Investments."
For further information about the foregoing and certain additional
investment practices of the International Magnum Fund, see "Additional
Investment Information" below.
THE JAPANESE EQUITY FUND
The investment objective of the Japanese Equity Fund is to provide long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of Japanese issuers. With respect to the Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stocks and depositary receipts.
23
<PAGE>
Under normal conditions, the Japanese Equity Fund will invest at least 80%
of its total assets in securities issued by entities that are organized under
the laws of Japan, entities for which the principal securities trading market is
in Japan, and entities not organized under the laws of Japan but deriving 50% or
more of their revenues or profits from goods produced or sold, investments made,
or services performed in Japan or which have at least 50% of their assets
situated in Japan. These securities may include debt securities (issued by the
Japanese government or by Japanese companies) when the Adviser believes that the
potential for capital appreciation from investment in debt securities equals or
exceeds that available from investment in equity securities. In making
investment decisions, the Adviser will consider, among other factors, the size
of the company, its financial condition, its marketing and technical strengths
and its competitiveness in its industry. All debt securities in which the Fund
may invest will be rated no lower than BBB by Standard & Poor's Ratings Group
("S&P"), Baa by Moody's Investors Services, Inc. ("Moody's") or BBB by Mikuni
Inc. ("Mikuni") (a Japanese rating agency) or, if unrated, of comparable quality
as determined by the Adviser. Securities rated BBB by S&P, Baa by Moody's or BBB
by Mikuni have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments on such securities than would be the case with
higher rated securities. The convertible securities in which the Fund may invest
include bonds, notes, debentures, preferred stocks and other securities
convertible into common stocks and may be fixed-income or zero coupon debt
securities. Prior to their conversion, convertible securities may have
characteristics similar to nonconvertible debt securities.
The Japanese Equity Fund currently intends to focus its investments in
Japanese companies that have an active market for their shares and that the
Adviser believes show a potential for better than average growth. The Fund
anticipates that most equity securities of Japanese companies in which it
invests, either directly or indirectly by means of ADRs or convertible
debentures, will be listed on securities exchanges in Japan. The Fund may also
invest in equity securities of Japanese companies that are traded in an
over-the-counter market.
The Japanese Equity Fund may also invest up to 20% of its total assets in
cash or short-term government or other short-term prime obligations or
repurchase agreements so that funds may be readily available for general
corporate purposes, including the payment of dividends, redemptions and
operating expenses, for investment in securities through exercise of rights or
otherwise. The Fund may invest in forward foreign currency contracts,
derivatives, when-issued and delayed delivery securities and non-publicly traded
securities including private placements and restricted securities. For temporary
defensive purposes, the Fund may invest a portion or all of its assets in money
market instruments and medium-term debt securities as described below under
"Additional Investment Information -- Temporary Investments" below.
For further information about the foregoing and certain additional
investment practices of the Japanese Equity Fund, see "Additional Investment
Information" below.
Investors should consider the following factors inherent in investment in
Japan.
TRADE ISSUES. Because of the concentration of Japanese exports in highly
visible products such as automobiles, machine tools and semiconductors, and the
large trade surpluses ensuing therefrom, Japan is in a difficult phase in its
relation with its trading partners, particularly the U.S., where the trade
imbalance is the greatest. Retaliatory action taken by such trading partners
could affect the ability of Japanese companies to export goods to these
countries, which could negatively impact the value of securities in the Fund.
CURRENCY FACTORS. The value of the yen in relation to the dollar has
fluctuated significantly in recent years. A decline in the value of the yen
would adversely affect the value of the Fund in dollar terms.
THE JAPANESE STOCK MARKET. Like other stock markets, the Japanese stock
market can be volatile. A decline in the market may have an adverse effect on
the availability of credit and on the value of the substantial stock holdings of
Japanese companies in particular, Japanese banks, insurance companies and other
financial institutions. A decline in the market may contribute to weakness in
Japan's economy. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States. In general, however, reported
net income in Japan is understated relative to U.S. accounting
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standards. In addition, Japanese companies have tended historically to have
higher growth rates than U.S. companies, and Japanese interest rates have
generally been lower than in the U.S., both of which factors tend to result in
lower discount rates and higher price-earnings ratios in Japan than in the
United States.
THE LATIN AMERICAN FUND
The investment objective of the Latin American Fund is long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily in
equity securities (i) of companies organized in or for which the principal
securities trading market is in Latin America, (ii) denominated in a Latin
American currency issued by companies to finance operations in Latin America, or
(iii) of companies that alone or on a consolidated basis derive 50% or more of
their annual revenues from either goods produced, sales made or services
performed in Latin America (collectively, "Latin American issuers") and by
investing, from time to time, in debt securities issued or guaranteed by a Latin
American government or governmental entity ("Sovereign Debt"). With respect to
the Fund, unless otherwise indicated, Latin America consists of Argentina,
Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the Dominican Republic,
Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay,
Peru, Uruguay and Venezuela. Income is not an investment objective or a
consideration in selecting investments.
Under normal conditions, substantially all, but not less than 80%, of the
Latin American Fund's total assets are invested in equity securities of Latin
American issuers and in Sovereign Debt. With respect to the Fund, equity
securities include common or preferred stocks (including convertible preferred
stock); bonds, notes or debentures convertible into common or preferred stock;
stock purchase warrants or rights, equity interests in trusts or partnerships;
or American, global or other types of depositary receipts. Securities in which
the Latin American Fund may invest include those that are neither listed on a
stock exchange nor traded over-the-counter. As a result of the absence of a
public trading market for these securities, they may be less liquid than
publicly traded securities.
The Latin American Fund focuses its investments in listed equity securities
in Argentina, Brazil, Chile and Mexico, the most developed capital markets in
Latin America. The Fund expects, under normal market conditions, to have at
least 55% of its total assets invested in listed equity securities of issuers in
these four countries. In addition, the Fund actively invests in markets in other
Latin American countries such as Colombia, Peru and Venezuela. The Fund is not
limited in the extent to which it may invest in any Latin American country and
intends to invest opportunistically as markets develop. The portion of the
Fund's holdings in any Latin American country will vary from time to time,
although the portion of the Fund's assets invested in Chile may tend to vary
less than the portions invested in other Latin American countries because, with
limited exceptions, capital invested in Chile currently cannot be repatriated
for one year.
The securities markets of Latin American countries are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many Latin American issuers
may be held by a limited number of persons, which may limit the number of shares
available for investment by the Fund. A limited number of issuers in most, if
not all, Latin American securities markets may represent a disproportionately
large percentage of market capitalization and trading value. The limited
liquidity of Latin American securities markets may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. In addition, certain Latin American securities markets, including those
of Argentina, Brazil, Chile and Mexico, are susceptible to being influenced by
large investors trading significant blocks of securities or by large
dispositions of securities resulting from the failure to meet margin calls when
due.
In addition to their smaller size, lesser liquidity and greater volatility,
Latin American securities markets are less developed than U.S. securities
markets. Disclosure and regulatory standards are in many respects less stringent
than U.S. standards. Furthermore, there is a lower level of monitoring and
regulation of the markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited. Consequently,
the prices at which the Fund may acquire investments may be affected by other
market participants' anticipation of the Fund's investing, by trading by persons
with material non-public information and by securities transactions by brokers
in anticipation of transactions by the Fund in particular securities.
Commissions and other transaction costs on most, if not all, Latin American
securities exchanges are generally
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higher than in the United States, although the Fund will endeavor to achieve the
most favorable net results on its portfolio transactions.
To the extent that the Latin American Fund's assets are not invested in
equity securities of Latin American issuers or in Sovereign Debt, the remainder
of the assets may be invested in (i) debt securities of Latin American corporate
issuers, (ii) equity or debt securities of corporate or governmental issuers
located in countries outside Latin America, and (iii) short-term and medium-term
debt securities of the type described below under "Temporary Investments." The
Fund's assets may be invested in debt securities when the Fund believes that,
based upon factors such as relative interest rate levels and foreign exchange
rates, such debt securities offer opportunities for long-term capital
appreciation. It is likely that many of the debt securities in which the Fund
will invest will be unrated. The Fund may invest up to 20% of its total assets
in securities that are determined by the Adviser to be comparable to securities
rated below investment grade by S&P or Moody's. Such lower-quality securities
are regarded as being predominantly speculative and involve significant risks.
The Latin American Fund's holdings of lower-quality debt securities will
consist predominantly of Sovereign Debt, much of which trades at substantial
discounts from face value and which may include Sovereign Debt comparable to
securities rated as low as D by S&P or C by Moody's. The Fund may invest in
Sovereign Debt to hold and trade in appropriate circumstances, as well as to use
to participate in debt for equity conversion programs. The Fund will invest in
Sovereign Debt only when the Fund believes such investments offer opportunities
for long-term capital appreciation. Investment in Sovereign Debt involves a high
degree of risk and such securities are generally considered to be speculative in
nature.
For temporary defensive purposes, the Latin American Fund may invest less
than 80% of its total assets in Latin American equity securities and Sovereign
Debt, in which case the Fund may invest a portion or all of its assets in other
equity or debt securities or may invest in certain short-term (less than twelve
months to maturity) and medium-term (not greater than five years to maturity)
debt securities, money market instruments or hold cash. The Fund may enter into
forward foreign currency exchange contracts and foreign currency futures
contracts, may purchase and write (sell) put and call options on securities,
foreign currency and on foreign currency futures contracts, and may enter into
stock index and interest rate futures contracts and options thereon. There
currently are limited options and futures markets for Latin American currencies,
securities and indexes, and the nature of the strategies adopted by the Adviser
and the extent to which those strategies are used depends on the development of
those markets. The Fund may also from time to time lend securities (but not in
excess of 20% of its total assets) from its portfolio to brokers, dealers and
financial institutions.
The Board of Directors has determined that, in light of the increased
presence of telecommunications companies in the Latin American markets, the
Fund's ability to achieve its investment objective would be materially adversely
affected if it were not permitted to invest more than 25% of its assets in
securities of companies in the telecommunications industries of the Latin
American countries in which the Fund invests. In accordance with the Fund's
investment restrictions and as a result of the Board's action, the Fund is
required to invest at least 25% of its total assets in securities of Latin
American issuers engaged in the telecommunications industry. The Fund will
remain so invested until the Board determines that the Fund should invest less
than 25% of its assets in that industry. Because the Fund will have a more
concentrated position in the securities of a single sector within the Latin
American securities markets, the Fund will be subject to certain risks with
respect to these portfolio securities. Market price movements affecting
telecommunications companies and their securities will have a greater impact on
the Fund's performance because of the more concentrated position in such
securities. Telecommunications may be subject to greater government regulation
than many other industries. Changes in government policies and the need to
obtain regulatory approvals may have a material effect on products and services
offered by telecommunications companies. Technological and structural
developments may adversely affect the profitability of telecommunications
companies. To better control the Fund's exposure to such risks, the Board has
limited investments in telecommunications securities to not more than 40% of the
Fund's assets.
The Latin American Fund is authorized to borrow up to 33 1/3% of its total
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing, for investment purposes to increase the opportunity
for greater return and for payment of dividends. Such borrowings would
constitute leverage, which
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is a speculative characteristic. See "Additional Investment Information --
Borrowing and Other Forms of Leverage."
The Latin American Fund may also enter into forward foreign currency
contracts, derivatives, reverse repurchase agreements, short sales, when-issued
and delayed delivery contracts and non-publicly traded securities, including
private placements and restricted securities.
For further information about the foregoing and certain additional
investment practices of the Latin American Fund, see "Additional Investment
Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Global Equity Allocation, Asian Growth, Emerging Markets, International
Magnum, and Japanese Equity Funds may borrow up to 10% of their total assets as
a temporary measure for extraordinary or emergency purposes. These Funds may not
purchase additional securities when borrowings exceed 5% of total assets. The
Latin American Fund may enter into reverse repurchase agreements in accordance
with its investment objective and policies and borrow amounts up to 33 1/3% of
its total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing. The Global Equity Fund may borrow money
(i) as a temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of the Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings) and, further, that
the Fund may not purchase additional securities when borrowings exceed 5% of its
total assets.
Borrowings by the Latin American Fund may result in leveraging. Leveraging
magnifies declines as well as increases in the net asset value of the Fund's
shares and in the yield on a Fund's investments. Although the Fund is authorized
to borrow, it will do so only when the Adviser believes that borrowing will
benefit the Fund after taking into account considerations such as the costs of
borrowing and the likely investment returns on securities purchased with
borrowed monies. The extent to which the Fund may borrow will also depend on the
availability of credit. No assurance can be given that the Fund will be able to
borrow on terms acceptable to the Funds or the Adviser. Borrowing by the Fund
may create the opportunity for increased net income but, at the same time, would
involve special risk considerations. Borrowing will create interest expenses for
the Fund which can exceed the income from the assets obtained with the proceeds.
To the extent the income derived from securities purchased with funds obtained
through borrowing exceeds the interest and other expenses that the Fund will
have to pay in connection with such borrowing, the Fund's net income will be
greater than if the Fund did not borrow. Conversely, if the income from the
assets obtained through borrowing is not sufficient to cover the cost of
borrowing, the net income of the Fund will be less than if the Fund did not
borrow, and therefore the amount available for distribution to shareholders will
be reduced. The Fund expects that any borrowing, other than for temporary
purposes, will be made on a secured basis. The Funds' custodian will either
segregate the assets securing the borrowing for the benefit of the lenders or
arrangements will be made with a suitable sub-custodian. If assets used to
secure the borrowing decrease in value, the Fund may be required to pledge
additional collateral to the lender in the form of cash or securities to avoid
liquidation of those assets. The rights of any lenders to the Fund to receive
payments of interest on and repayments of principal of borrowings will be senior
to the rights of the Fund's shareholders, and the terms of the Fund's borrowings
may contain provisions that limit certain activities of the Fund and could
result in precluding the purchase of securities and instruments that the Fund
would otherwise purchase.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Global Equity Fund may invest in equity-linked securities, which are
securities that are convertible into, or the value of which is based upon the
value of, equity securities upon certain terms and conditions. The amount
received by an investor at maturity of such securities is not fixed but is based
on the price of the
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underlying common stock. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. In addition, it is not possible to
predict how equity-linked securities will trade in the secondary market which is
fairly developed and liquid. The market for such securities may be shallow,
however, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.
DEPOSITARY RECEIPTS
The Funds may invest in depositary receipts, including ADRs, Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts are typically issued by
foreign depositaries, although they may also be issued by U.S. depositaries, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. The Funds may invest in sponsored and unsponsored
depositary receipts. For purposes of the Funds' investment policies, a Fund's
investments in depositary receipts will be deemed to be investments in the
underlying securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each of the Funds may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when a Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value of securities held by the Fund against exchange rate fluctuations. While
such forward contracts may limit losses to a Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
FOREIGN INVESTMENT
Each of the Funds invests in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
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disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Also, it may be more difficult to obtain a judgment in a court outside
the United States. Emerging countries may have less stable political
environments than more developed countries.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act").
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. Certain of the Funds may invest in these investment funds, including
those advised by MSAM, as well as other investment companies, subject to
applicable provisions of the 1940 Act and other applicable laws.
If a Fund invests in such investment companies, the Fund's shareholders will
bear not only their proportionate share of the expenses of the Fund (including
operating expenses and the fees of the Adviser), but also will indirectly bear
similar expenses of the underlying investment funds.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Funds will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of a Fund's total assets (exceeding in the aggregate 20% of such
value with respect to the Latin American Fund). As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in
collateral should the borrower of the portfolio securities fail financially.
LOWER RATED AND UNRATED DEBT SECURITIES
The Emerging Markets and Latin American Funds may invest in lower rated or
unrated debt securities, commonly referred to as "junk bonds." In addition, the
emerging country debt securities in which such Funds may invest are subject to
risk and will not be required to meet a minimum rating standard and may not be
rated. Fixed income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity. Lower rated or unrated securities are more likely to react to
developments affecting credit risk than are more highly rated
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securities, which react primarily to movements in the general level of interest
rates. The market values of fixed-income securities tend to vary inversely with
the level of interest rates. Yields and market values of lower rated and unrated
debt securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of prevailing interest rates. Fluctuations in the value of a
Fund's investments will be reflected in the Fund's net asset value per share.
The Adviser considers both credit risk and market risk in making investment
decisions for a Fund. Investors should carefully consider the relative risks of
investing in lower rated and unrated debt securities and understand that such
securities are not generally meant for short-term investing.
Adverse economic developments may disrupt the market for U.S. corporate
lower rated and unrated debt securities and for international and emerging
country debt securities. Such disruptions may severely affect the ability of
issuers, especially highly leveraged issuers, to service their debt obligations
or to repay their obligations upon maturity. In addition, the secondary market
for lower rated and unrated debt securities, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. As a result, the Adviser could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. In addition, there may be limited trading
markets for debt securities of issuers located in emerging countries. Prices
realized upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating a Fund's net
asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect a
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, a Fund may have
to replace the security with a lower yielding security, resulting in a decreased
return for investors. If a Fund experiences unexpected net redemptions, it may
be forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Fund's investment portfolio and increasing the
exposure of the Fund to the risks of lower rated and unrated debt securities.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Funds include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
including high-grade commercial paper, repurchase agreements and bank
obligations, such as bankers' acceptances and certificates of deposit (including
Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, a Fund may be required to bear the expenses of
registration. No Fund may invest more than 15% of its net assets in illiquid
securities, which generally includes securities that are restricted from sale to
the public without registration under the Securities Act of 1933, as amended
(the "1933
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Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, the
availability of reliable pricing information, the number of dealers making
quotes or making a market in the security and the number of potential purchasers
in the market for the security. To the extent that qualified institutional
buyers become uninterested in buying 144A Securities, such securities in a
Fund's portfolio could increase the Fund's level of illiquidity. Notwithstanding
the foregoing, none of the Funds other than the Global Equity Fund may invest
more than 10% of its total assets in securities subject to legal or contractual
restrictions on resale.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Fund's Board of Directors. In a repurchase agreement, a Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term of these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by a Fund to the seller. The Funds always receive securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, a Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon the collateral may be delayed or limited. Repurchase
agreements with durations (or maturities) over seven days in length are
considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Latin American Fund and the Global Equity Fund may enter into reverse
repurchase agreements with brokers, dealers, banks or other financial
institutions that meet credit guidelines set by the Company's Board of
Directors. In a reverse repurchase agreement, a Fund sells a security and agrees
to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. It may also be viewed as
the borrowing of money by the Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. The
Funds will enter into a reverse repurchase agreement only if the interest income
from investment of the proceeds is expected to be greater than the interest
expense of the transaction and the proceeds are invested for a period no longer
than the term of the agreement. The Funds will maintain with an appropriate
custodian a separate account with a segregated portfolio of cash or liquid
assets in an amount at least equal to its purchase obligations under these
agreements (including accrued interest). If interest rates rise during a reverse
repurchase agreement, it may adversely affect a Fund's net asset value. In the
event that the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
RUSSIAN SECURITIES TRANSACTIONS
The Emerging Markets Fund may invest in equity securities of Russian
companies. The registration, clearing and settlement of securities transactions
in Russia are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of shares in Russian companies is evidenced by entries in a company's
share register (except where shares are held through depositories that meet the
requirements of the 1940 Act) and the issuance of extracts from the register or,
in certain limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable and the Fund could possibly lose its
registration through oversight, negligence or fraud. Moreover, Russia lacks a
centralized registry to record securities transactions and registrars located
throughout Russia or the companies themselves maintain share registers.
Registrars are under no obligation to provide extracts to potential purchasers
in a timely manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for the Fund to enforce any
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rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by law to employ an independent company to
maintain share registers, in practice, such companies have not always followed
this law. Because of this lack of independence of registrars, management of a
Russian company may be able to exert considerable influence over who can
purchase and sell the company's shares by illegally instructing the registrar to
refuse to record transactions on the share register. Furthermore, these
practices may prevent the Fund from investing in the securities of certain
Russian companies deemed suitable by the Adviser and could cause a delay in the
sale of Russian securities by the Fund if the company deems a purchaser
unsuitable, which may expose the Fund to potential loss on its investment.
In light of the risks described above, the Board of Directors has approved
certain procedures concerning the Fund's investments in Russian securities.
Among these procedures is a requirement that the Fund will not invest in the
securities of a Russian company unless that issuer's registrar has entered into
a contract with the Fund's sub-custodian containing certain protective
conditions, including, among other things, the sub-custodian's right to conduct
regular share confirmations on behalf of the Fund. This requirement will likely
have the effect of precluding investments in certain Russian companies that the
Fund would otherwise make.
SHORT SALES
A short sale is a transaction in which a Fund sells securities it either
owns or has the right to acquire at no added cost (i.e., "against the box") or
it does not own (but has borrowed) in anticipation of a decline in the market
price of the securities. The Emerging Markets and Latin American Funds may from
time to time sell securities short without limitation, although neither of such
Funds intends to sell securities short on a regular basis. The Global Equity
Fund may from time to time sell securities short against the box. When a Fund
makes a short sale of borrowed securities, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, a Fund will need to arrange
through a broker to borrow the securities and, in so doing, the Fund will become
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. A Fund may have to pay a premium to
borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.
A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or liquid assets. In addition, the Fund will place in a segregated
account with an appropriate custodian an amount of cash or liquid assets equal
to the difference, if any, between (1) the market value of the securities sold,
and (2) any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest a portion or all of its assets in money
market instruments, short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is a current policy of each of the Funds,
other than the Global Equity Fund, not to enter into when-issued commitments or
delayed delivery securities exceeding, in the aggregate, 15% of a Fund's net
assets other than the obligations created by these commitments.
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ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
DERIVATIVE INSTRUMENTS
The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Funds may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Funds. Each Fund, other than the Global Equity Fund (as described below),
will limit its use of the foregoing derivative instruments for non-hedging
purposes to 33 1/3% of its total assets measured by the aggregate notional
amount of outstanding derivative instruments. In addition, no Fund, other than
the Global Equity Fund, will enter into futures contracts and options on futures
contracts to the extent that the notional value of its outstanding obligations
to purchase securities under such contracts would exceed 20% of its total
assets. The Global Equity Fund will limit its use of the foregoing derivative
instruments to 50% of its total assets measured by the aggregate notional amount
of outstanding derivative instruments, provided that no more than 33 1/3% of its
total assets are invested, for non-hedging purposes, in derivatives other than
futures and options on futures. The Funds' investments in forward foreign
currency contracts and derivatives used for hedging purposes are not subject to
the limits described above.
The Funds may use derivative instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's investment strategy or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by a
Fund for hedging purposes and in other circumstances when a Fund's Adviser
believes it advantageous to do so consistent with the Fund's investment
objective. The Funds will not, however, use derivatives in a manner that creates
leverage, except to the extent that the use of leverage is expressly permitted
by a particular Fund's investment policies, and then only in a manner consistent
with such policies.
Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Funds may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In
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addition, caps, floors and collars are subject to risk of default by the
counterparty because they are privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by only entering into
futures contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
OPTIONS TRANSACTIONS. The Funds may seek to increase their returns or may
hedge their portfolio investments through options transactions with respect to
(i) securities, instruments, indices or baskets thereof in which such Funds may
invest and (ii) foreign currencies. Purchasing a put option gives a Fund the
right to sell a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the
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option. Purchasing a call option gives a Fund the right to purchase a specified
security, currency or basket of securities or currencies at the exercise price
until the expiration of the option.
Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. A Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price no
higher than the price at which the underlying instrument was sold pursuant to a
short option position.
By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such option markets. The primary risks associated with the use of options are
(i) imperfect correlation between the change in market value of investments
held, purchased or sold by a Fund and the prices of options relating to such
investments; and (ii) possible lack of a liquid secondary market for an option.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest rates, prices and total return on interest rate indices, fixed income
indices, stock indices and commodity indices (as well as amounts derived from
arithmetic operations on these indices). For example, a Fund may agree to swap
the return generated by a fixed income index for the return generated by a
second fixed income index. The currency swaps into which the Funds may enter
will generally involve an agreement to pay interest streams in one currency
based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.
A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap
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counterparty will be covered by the maintenance of a segregated account
consisting of cash or liquid securities. A Fund will not enter into any swap
agreement unless the counterparty meets the rating requirements set forth in
guidelines established by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of 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 market
values, interest rates and currency exchange rates, the investment performance
of the Funds would be less favorable than it would have been if this investment
technique were not used.
YEAR 2000 RISKS
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and obtain reasonable
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact upon the Fund. In addition, the Year
2000 Problem may adversely affect the issuers of securities in which the Fund
may invest which, in turn, may adversely affect the net asset value of the Fund.
INVESTMENT LIMITATIONS
Each Fund, except the Emerging Markets Fund, Latin American Fund and
International Magnum Fund, is a diversified investment company under the 1940
Act, and therefore, with respect to 75% of such Fund's total assets: (a) the
Fund may not invest more than 5% of its total assets in the securities of any
one issuer, except obligations of the U.S. Government, and its agencies and
instrumentalities, and (b) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The Emerging Markets Fund, Latin American
Fund and International Magnum Fund are non-diversified investment companies
under the 1940 Act, which means that each of such Funds is not limited by the
1940 Act in the proportion of its total assets that may be invested in the
obligations of a single issuer. Thus, each of such Funds may invest a greater
proportion of its total assets in the securities of a smaller number of issuers
and, as a result, will be subject to greater risks resulting from such practice
than a portfolio which is diversified. Each of such Funds, however, intends to
comply with the diversification requirements imposed by the Internal Revenue
Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.
Each Fund also operates under certain investment restrictions that are
deemed fundamental policies and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each Fund
operates under certain non-fundamental investment limitations as described in
the Statement of Additional Information.
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MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator of the Funds. The Adviser provides
investment advice and portfolio management services pursuant to an advisory
agreement (the "Advisory Agreement") and subject to the supervision of the
Company's Board of Directors, makes the Funds' investment decisions, arranges
for the execution of portfolio transactions and generally manages the Funds'
investments. The Advisory Agreement also provides that the Adviser may appoint
sub-advisers to perform these portfolio management responsibilities. See
"Investment Sub-Adviser" below. The Adviser is entitled to receive an aggregate
advisory fee computed daily and paid monthly at the following annual rates
applied to the average daily net assets for each Fund:
<TABLE>
<S> <C>
Asian Growth Fund.................................................... 1.00%
Emerging Markets Fund................................................ 1.25%
Global Equity Fund................................................... 1.00%
Global Equity Allocation Fund........................................ 1.00%
International Magnum Fund............................................ 0.80%
Japanese Equity Fund................................................. 1.00%
Latin American Fund.................................................. 1.25%
</TABLE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of the Fund's other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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; asset management;
trading of futures, options, foreign exchange commodities and swaps (including
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and credit services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Funds. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Funds' investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Funds' investments.
The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If a
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
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MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had, together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
ASIAN GROWTH FUND -- VINOD SETHI, TIMOTHY JENSEN AND ASHUTOSH SINHA. Vinod
Sethi joined MSAM in 1989 and since then, has been actively involved in MSAM's
emerging market group. Mr. Sethi is a Managing Director of Morgan Stanley and
MSAM and is MSAM's Chief Investment Officer for the Asian region. He received
his undergraduate degree in Chemical Engineering for I.I.T. (Bombay) and his
M.B.A. from New York University School of Business. Timothy Jensen joined MSAM
in 1998. He is a Principal of Morgan Stanley and MSAM and a member of MSAM's
emerging markets group focusing primarily on the East Asian markets. Prior to
joining MSAM, he was a Partner at Ardsley Partners, where he managed a portion
of the emerging markets assets. Prior to that, he was a Vice President at
Bankers Trust Company where he was responsible for a Latin American equity
portfolio. He graduated from Harvard College with a B.A. in History and received
an M.B.A. in Finance from UCLA. Ashutosh Sinha joined MSAM in 1995. He is a Vice
President of Morgan Stanley and MSAM and a member of MSAM's emerging markets
group focusing primarily on the East Asian and Middle Eastern markets. Prior to
joining MSAM, he spent two years at SBI Funds Management Ltd., where he was an
analyst for the India Magnum Fund. Previous to that, he worked for three years
as a consultant for Citicorp Overseas Software Ltd. He graduated from I.I.T.
(Kanpur) with a degree in Electrical Engineering and received an M.B.A. from the
Indian Institute of Management, Calcutta. Mr. Sethi has had primary
responsibility for managing the Asian Growth Fund since April 1998 and Mr.
Jensen and Mr. Sinha have shared primary responsibility for managing the Asian
Growth Fund since August 1, 1998.
EMERGING MARKETS FUND -- MADHAV DHAR AND ROBERT C. MEYER. Madhav Dhar is a
Managing Director of the Sub-Adviser and Morgan Stanley. He joined the
Sub-Adviser in 1984. He is a member of the Sub-Adviser's executive committee,
head of the Sub-Adviser's emerging markets group and chief investment officer of
the Sub-Adviser's global emerging market equity portfolios. He holds a B.S.
(honors) from St. Stephens College, Delhi University (India), and an M.B.A. from
Carnegie - Mellon University. Mr. Dhar has been primarily responsible for
managing the Fund's assets since it commenced operations. Robert Meyer joined
the Sub-Adviser in 1989. He is a Managing Director of the Sub-Adviser and Morgan
Stanley and co-manager of the Adviser's emerging markets group and head of the
Sub-Adviser's Latin American team. He was born in Argentina and graduated from
Yale University with a B.A. in Economics and Political Science. He received a
J.D. from Harvard Law School. In addition, he is also a Chartered Financial
Analyst. Mr. Meyer has worked with Mr. Dhar in managing the Fund's assets since
its inception.
GLOBAL EQUITY FUND -- FRANCES CAMPION. Frances Campion joined the
Sub-Adviser in January 1990 as a Global Equity Fund Manager and is now a
Managing Director of Morgan Stanley and the Sub-Adviser. Her responsibilities
have included day-to-day management of the Global Equity Fund since it commenced
operations. Ms. Campion has ten years global investment experience. She is a
graduate of University College, Dublin.
GLOBAL EQUITY ALLOCATION FUND -- BARTON M. BIGGS AND ANN D. THIVIERGE.
Barton Briggs has been Chairman and a director of the Sub-Adviser since 1980 and
a Managing Director of Morgan Stanley and the Sub-Adviser since 1975. He is also
a director of Morgan Stanley Group Inc. and a director and chairman of various
registered investment companies to which the Sub-Adviser and certain of its
affiliates provide investment advisory services. Mr. Biggs holds a B.A. from
Yale University and an M.B.A. from New York University. Ann Thivierge is a
Principal of Morgan Stanley and the Sub-Adviser. She is a member of the
Sub-Adviser's asset allocation committee, primarily representing the Total Fund
Managing team since its inception in 1991. Prior to joining the Sub-Adviser in
1986, she spent two years at Edgewood Management Company, a privately held
investment management firm. Ms. Thivierge holds a B.A. in International
Relations from James Madison College, Michigan State University, and an M.B.A.
in Finance from New York University. Mr. Biggs and Ms. Thivierge have had
primary responsibility for managing the Fund since it commenced operations.
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<PAGE>
INTERNATIONAL MAGNUM FUND -- FRANCINE J. BOVICH. Francine J. Bovich, a
Managing Director of Morgan Stanley and the Sub-Adviser, joined the Sub-Adviser
in 1993 and has had primary responsibility for managing the Fund's assets since
its commencement of operation. She is responsible for portfolio management and
communication of the Sub-Adviser's asset allocation strategy to institutional
investor clients. Previously, Ms. Bovich was a Principal and Executive Vice
President of Westwood Management Corp. ("Westwood"), a registered investment
adviser. Before joining Westwood, she was a Managing Director of Citicorp
Investment Management, Inc. (now Chancellor Capital Management), where she was
responsible for the Institutional Investment Management group. Ms. Bovich began
her investment career with Banker's Trust Company. She holds a B.A. in Economics
from Connecticut College and an M.B.A. in Finance from New York University.
JAPANESE EQUITY FUND -- JOHN R. ALKIRE AND KUNIHIKO SUGIO. John R. Alkire is
a Managing Director of Morgan Stanley and the Sub-Adviser. Mr. Alkire joined the
Sub-Adviser in 1981 to initiate foreign equity sales and trading to Pacific
basin institutions. He was appointed President of Morgan Stanley Investment
Advisory, Japan in October 1993. Prior to 1993, he specialized in Japanese
warrants and cash equity sales and trading to Japanese financial institutions in
the Tokyo office. Mr Alkire is a graduate of University of Victoria Canada.
Kunihiko Sugio, a Principal of Morgan Stanley and the Sub-Adviser, joined the
Adviser in December 1993 and manages dedicated Japanese equity portfolios. Prior
to joining the Adviser, he worked with Baring International Investment
Management, Tokyo, where he was a Director and fund manager. He graduated from
Wakayama Kokuritsu University. Mr. Alkire and Sugio will share primary
responsibility for managing the Fund's assets upon commencement of operation.
LATIN AMERICAN FUND -- ROBERT L. MEYER AND ANDY SKOV. Robert Meyer and Andy
Skov have shared primary responsibility for managing the Fund's assets. Mr.
Meyer has had responsibility for managing the Fund's assets since its
commencement of operations and Mr. Skov since May, 1997. Information about
Robert Meyer is included under the Emerging Markets Fund above. Andy Skov joined
the Sub-Adviser in 1994 as a Portfolio Manager. Currently, he is a Principal of
Morgan Stanley and the Sub-Adviser. He graduated from the University of
California at Berkeley with a B.A. (Phi Beta Kappa) in Political Science and
Economics Development.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and transfer agent
services. For its services under the Administration Agreement, the Company pays
the Administrator a monthly fee which on an annual basis equals 0.25% of the
average daily net assets of the Funds.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
LOCAL ADMINISTRATORS FOR THE LATIN AMERICAN FUND. The Fund has, as required
by local law, entered into administration agreements with local administrators
in Brazil, Chile, and Colombia. A local administrator provides certain services
for the Fund with respect to the Fund's investments in that country, including
services relating to foreign exchange, local taxes, remittance of income and
capital gains, and repatriation of investments. The Fund's local administrator
in Brazil, BankBoston S.A., in sub-custodial accounts at The First National Bank
of Boston in San Paulo, Brazil is paid by the Company an annual fee of 0.125% of
the Fund's average weekly net assets invested in Brazil. The Fund's local
administrator in Chile, Bice Chileconsult Agente de Valores S.A., a
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<PAGE>
Chilean corporation, is paid by the Company an annual fee of 0.125% of the
Fund's average weekly net assets invested in Chile. The Fund's local
administrator in Colombia, CitiTrust S.A., a Colombian trust company, is paid by
the Company an annual fee of $1,000 plus 0.20% per transaction in Colombia.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Adviser, Administrator and Distributor.
The officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds. The Company may in the future offer one or more classes of
shares for the Funds that may have sales charges or other distribution charges
or a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from each Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to the
Class C shares, the Distributor expects to reallocate substantially all of its
fee to such Participating Dealers. The Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee
and the Distributor is free to make additional payments out of its own assets to
promote the sale of Fund shares. Class A shares, Class B shares and Class C
shares are subject to a service fee at an annual rate of 0.25% on an annualized
basis of the average daily net assets of such class of shares of the Funds. In
addition to such payments, the Adviser or its affiliates may pay certain
expenses associated with activities which might be construed to be financing the
sale of the Fund's shares, including payments to third parties that provide
assistance in the distribution effort (in addition to selling shares and
providing shareholder services). Any payments by the Adviser or its affiliates
will be made directly from their respective assets and will not be made from the
assets of the Company or by the assessment of a charge on shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of such Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed
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by Van Kampen Investor Services Inc. ("Investor Services"). The Adviser may
elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. Each Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company 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 are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
As of the date of this Prospectus, the Japanese Equity Fund is not offering
shares.
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. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Funds available for sale may be purchased on any business day
through Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, Investor Services, a
wholly-owned subsidiary of Van Kampen. When purchasing shares of the Company,
investors must specify the Fund and 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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable 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 per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by Participating Dealers after the close of the New York Stock Exchange
(the "NYSE") are priced based on the net asset value per share calculated after
the next day's close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including higher distribution fees) resulting from
such sales arrangement, (ii) generally, each class has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan to which its
distribution fee or service fee is paid, (iii) certain shares are subject to a
conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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 higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company's shares and other persons
entitled to receive
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<PAGE>
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investments in the Funds, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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 "Fund Expenses" 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 shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, 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 most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
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. Investors should understand that the purpose and function of the CDSC
and ongoing distribution fee with respect to Class B shares and Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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 Participating 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 Company. 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 Company. 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 business
nature. In some instances, additional compensation or promotional incentives may
be offered to Participating Dealers that have
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sold or may sell significant amounts of shares during specified periods of time.
Such fees paid for such services and activities with respect to a Fund will not
exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET AMOUNT (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE INVESTED PRICE)
- --------------------------------------------------------- --------------- ------------------- -----------------------
<S> <C> <C> <C>
Less than $50,000........................................ 5.75 6.10 5.00
$50,000 but less than $100,000........................... 4.75 4.99 4.00
$100,000 but less than $250,000.......................... 3.75 3.90 3.00
$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 initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries 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, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating 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 Company. 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 Participating Dealers must notify the Company 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 Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in
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<PAGE>
combination, by any of the foregoing; a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account, or a "company" as defined
in Section 2(a)(8) of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
("Asset Management") and distributed by the Distributor as determined from time
to time by the Company's Board of Directors.
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 a Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the 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 investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charges 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 form 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company 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 Company 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 Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating 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 a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account
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<PAGE>
activity statements to such participants on a monthly basis only, even if their
investments are made more frequently. The Company reserves the right to modify
or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value per share without an initial sales charge, upon written assurance
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the Fund, by:
(1) Current or retired trustees/directors of funds advised by the
Adviser or Asset Management 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 investments 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 Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans which invest in multiple fund families through national wirehouse
alliance programs 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 alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a
retirement plan or held in a tax-advantaged retirement account who purchase
shares of the Fund with proceeds from distributions from such plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary 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 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. Section 403(b) and similar accounts for which Van
Kampen Trust Company ("Van Kampen Trust") 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. A
commission will be paid to dealers who initiate and are responsible for such
purchases within a rolling twelve month period as follows: 1.00% on sales up
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of the
Funds 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 Funds and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria
45
<PAGE>
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
participant's account in connection with this privilege will be subject to a
contingent deferred sales charge of one percent 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 and grandchildren
under 21 years of age, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Funds at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE
YEAR SINCE PURCHASE OF THE DOLLAR AMOUNT
PAYMENT WAS MADE SUBJECT TO CHARGE
- ------------------------------------------------------------------- -------------------------
<S> <C>
First.............................................................. 5.00%
Second............................................................. 4.00%
Third.............................................................. 3.00%
Fourth............................................................. 2.50%
Fifth.............................................................. 1.50%
Thereafter......................................................... None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to
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<PAGE>
pay to Participating Dealers a portion of its distribution fee under the Rule
12b-1 Plan, as described under "Management of the Company -- Distributor" above.
Additionally, the Distributor may pay additional promotional incentives, in the
form of cash or other compensation, to authorized dealers that sell Class B
shares of the Funds. The combination of the CDSC and the distribution fee
facilitates the ability of the Company to sell the Class B shares without a
sales charge being deducted at the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will generally make payments to the Participating Dealers that handle the
purchases of such shares at the rate of up to 1.00% of the purchase price of
such shares at the time of purchase and expects to pay to Participating Dealers
most of its distribution fee, with respect to such shares, under the Rule 12b-1
Plan for such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum amount of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described under "Redemption of Shares." A shareholder,
or their representative, must notify the Company's Transfer Agent prior to the
time of redemption if such circumstances exist and the shareholder is eligible
for this waiver. The shareholder is responsible for providing sufficient
documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Funds without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of a Fund at net asset value per share with no
initial sales charge. A Class C shareholder who has redeemed shares of a
Participating Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of a Fund with credit given for any CDSC paid upon
such redemption. The reinstatement privilege as to any specific Class A, Class B
or Class C shares must be exercised within 180 days of the redemption. The
Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is
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<PAGE>
also offered to participants in those eligible retirement plans held or
administered by Van Kampen Trust for repayment of principal (and interest) on
their borrowings. See the Statement of Additional Information for further
discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Investor Services. Investor Services acts as transfer agent
for the Company and performs bookkeeping, data processing and administration
services related to the maintenance of shareholder accounts. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from Investor Services showing any reinvestments
of dividends and capital gains distributions and any other activity in the
account since the preceding statement. Such shareholders also will receive
separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Funds. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder. Both accounts must also be of the same type, either
non-retirement or retirement. Any two non-retirement accounts can be used. 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 the 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 portfolio at its net asset value as of the payable date of the
distribution only if
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<PAGE>
shares of such selected portfolio have been registered for sale in the
investor's state and are currently available for sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust 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.
EXCHANGE PRIVILEGE. Shares of the Funds or any Participating Fund may be
exchanged for shares of the same class of another Participating Fund based on
the net asset value per share of each fund on the date of exchange, subject to
certain limitations. Before effecting an exchange, shareholders in the Company
should obtain and read a current prospectus of the Participating Funds into
which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER
PARTICIPATING FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE
CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund 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.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares--Telephone Transaction Procedures" for
more information. The exchange will take place at the relative net asset value
per share of the shares next determined after receipt of such request with
adjustment for any additional sales charge. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment. If an
account has multiple owners, Investor Services may rely on the instructions of
any one owner.
SYSTEMATIC 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.
Investors 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
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<PAGE>
plan. This plan provides for the orderly use of the entire account, not only the
income but also the principal, if necessary. Each withdrawal constitutes a
redemption of shares on which taxable gain or loss will be recognized. The plan
holder may arrange for monthly, quarterly, semi-annual, or annual checks in any
amount not less than $25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company 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 purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
www.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK"), and the Funds employ
procedures considered by them to be reasonable to confirm that instructions
communicated through the internet are genuine. Such procedures include requiring
use of a personal identification number prior to acting upon internet
instructions and providing written confirmation of instructions communicated
through the internet. If reasonable procedures are employed, neither VK nor the
Funds will be liable for following instructions through the internet which are
reasonably believed to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, any applicable CDSC) at any time by sending a
written request in proper form directly to the Company c/o Van Kampen Investor
Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption
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<PAGE>
request through a Participating Dealer or by calling the Company. See "Purchase
of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would 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. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received, less any applicable CDSC, by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 287-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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, Investor Services may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
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<PAGE>
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C
shares 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 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 death or the initial determination of disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value without sales charge. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. VK and the Funds 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 VK nor the Funds will be liable for following instructions which are
reasonably believed to be genuine. VK and the Funds may be liable for any losses
due to unauthorized or fraudulent instructions if reasonable procedures are not
followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of a Fund. The net
asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no
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closing price is available, such securities will be valued at the last quoted
sale price on the day the valuation is made. Price information on listed
securities is taken from the exchange where the security is primarily traded.
Unlisted securities and listed securities not traded on the valuation date for
which market quotations are readily available are valued at the average of the
mean between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the closing price, or if that is
unavailable, the latest quoted sale price on the day of valuation. If there is
no such reported sale, the latest quoted bid price will be used. Debt securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost, if it approximates market value. In the event that amortized cost does not
approximate market value, market prices as determined above will be used. The
"amortized cost" method of valuation does not take into account unrealized gains
or losses. This method involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price a Fund would receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the Sub-Adviser select the brokers or dealers that will
execute the purchases and sales of investment securities for the Funds. The
Adviser and the Sub-Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the Funds to their clients or
who act as agents in the purchase of shares of the Funds for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Adviser and the Sub-Adviser, or broker affiliates
of Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objective of each Fund is not to invest for short-term trading,
a Fund will seek to take advantage of trading opportunities as they arise to the
extent they are consistent with the Fund's objective. Accordingly, investment
securities may be sold from time to time without regard to the length of time
they have been held. It is anticipated that the annual portfolio turnover rate
will not exceed 100% under normal circumstances for the Japanese Equity Fund
when it commences investment operation. High portfolio turnover (i.e. 100% or
more) involves correspondingly greater transaction costs which will be borne
directly by such Fund. In addition, high portfolio turnover may result in more
capital gains which would be taxable to the shareholders of the particular Fund.
See "Financial Highlights" above for the Funds' historical portfolio turnover
rates.
53
<PAGE>
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by such Fund were
reinvested on the reinvestment dates during the period. Total return does not
take into account any federal or state income taxes consequences to shareholders
subject to tax. The Company may also include comparative performance information
in advertising or marketing the Funds' shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Funds, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
Each Fund expects to distribute substantially all of its net investment
income in the form of annual dividends. Each Fund expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of a
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of the
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole.
Accordingly, net long-term and short-term capital gains, net income and
operating expenses will be determined separately for each Fund.
Each Fund has elected and qualified, and intends to continue to qualify each
year, for the special tax treatment afforded "regulated investment companies"
("RICs") under Subchapter M of the Code so that it will be relieved of federal
income tax on that part of its net investment income and net capital gain (the
excess of net long-term capital gain over net short-term capital loss, less any
available capital loss carryforward) which is distributed to its shareholders.
54
<PAGE>
DISTRIBUTIONS AND DISPOSITIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held a Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. The Funds will make
annual reports to shareholders of the federal income tax status of all
distributions. See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gain dividends).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to continue to qualify as a RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by a Fund in October, November or
December that are payable as of a record date in such month and are paid at any
time during January of the following year are treated as having been paid by the
Fund and received by the shareholders on December 31st of the year in which they
are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Funds.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%. A special 28% tax rate may apply to
a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended June 30, 1998.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998 the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of the Funds, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Funds have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act. Any
55
<PAGE>
person or organization owning 25% or more of the outstanding shares of a Fund
may be presumed to "control" (as that term is defined in the 1940 Act) such
Fund. As of September 3, 1998, Charles Schwab & Co., Inc., Exclusive Benefit of
its customers, 101 Montgomery Street, San Francisco, CA 94104-4122, was presumed
to "control" the Emerging Markets Fund based solely on its ownership of 25% or
more of the outstanding voting shares of such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Street, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
56
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S RATINGS GROUP -- CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
A-1
<PAGE>
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
- --------------------------------------------------------------------------------
VAN KAMPEN
ASIAN GROWTH FUND
EMERGING MARKETS FUND
GLOBAL EQUITY FUND
GLOBAL EQUITY ALLOCATION FUND
INTERNATIONAL MAGNUM FUND
JAPANESE EQUITY FUND
LATIN AMERICAN FUND
PORTFOLIOS OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PORTFOLIOS OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the shares of the
Morgan Stanley Money Market Fund, the Morgan Stanley Tax-Free Money Market Fund
and the Morgan Stanley Government Obligations Money Market Fund (collectively,
the "Money Market Funds" or the "Funds" and each a "Fund").
The Funds are designed to make available to investors the expertise of Van
Kampen Investment Advisory Corp. as an investment adviser (the "Adviser") and
administrator (the "Administrator") and the Adviser's affiliate, Morgan Stanley
Asset Management Inc. as the sub-adviser ("MSAM" or the "Sub-Adviser") to the
Fund and Van Kampen Funds Inc. as the Funds' distributor (the "Distributor").
Shares are available through the Distributor and investment dealers, banks and
financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers"). As of the date of this
Prospectus, the Morgan Stanley Tax-Free Money Market Fund is not offering
shares.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers additional
portfolios which are described in other prospectuses. The Statement of
Additional Information and the prospectuses pertaining to the other portfolios
of the Company are available upon request and without charge by writing or
calling the Company at the address and telephone number set forth above. The
Statement of Additional Information and other materials regarding the Company
have been filed with the Securities and Exchange Commission and are available at
the Commission's internet web site (http://www.sec.gov).
THE FUNDS' SHARES ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (COMPANY OR
OTHERWISE) OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION,
OR ANY AFFILIATES OR CORRESPONDENT THEREOF. THE COMPANY'S SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENTS IN THE COMPANY INVOLVE RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................................................... 3
Fund Expenses......................................................... 4
Financial Highlights.................................................. 5
Investment Objectives and Policies.................................... 8
Additional Investment Information..................................... 10
Investment Limitations................................................ 14
Management of the Company............................................. 14
Purchase of Shares.................................................... 16
Purchases by Prime Resource Account Holders........................... 17
Purchases by All Other Shareholders................................... 18
Shareholder Services.................................................. 20
Redemption of Shares.................................................. 21
Redemptions by Prime Resource Account Holders......................... 21
Redemptions by All Other Shareholders................................. 22
Valuation of Shares................................................... 23
Performance Information............................................... 23
Dividends and Distributions........................................... 24
Taxes................................................................. 24
General Information................................................... 26
</TABLE>
NO DEALER, SALES REPRESENTATIVE 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 MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR 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 TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
2
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-three portfolios which are designed
to offer investors a range of investment choices with Van Kampen Investment
Advisory Corp. providing services as adviser (the "Adviser") and administrator
(the "Administrator") and its affiliate, Morgan Stanley Asset Management Inc.
("MSAM" or the "Sub-Adviser"), providing services as the sub-adviser. Van Kampen
Funds Inc. (the "Distributor") provides services as Distributor. For ease of
reference, the words "Morgan Stanley," which begin the name of each portfolio,
are not included in the portfolios named below. The investment objective of each
Fund is as follows:
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal. As of the date of
this Prospectus, the Tax-Free Money Market Fund is not offering shares.
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
RISK FACTORS
Investments in the Funds are neither insured nor guaranteed by the U.S.
Government, and there is no assurance that a Fund will be able to maintain a
stable net asset value of $1.00 per share. See "Investment Objectives and
Policies." The Money Market Fund and the Government Obligations Money Market
Fund may enter into reverse repurchase agreement transactions. See "Additional
Investment Information".
HOW TO INVEST
Shares of each of the Funds are offered at net asset value per share. Share
purchases may be made through the Distributor, through Participating Dealers or
by sending payments directly to the Company. The minimum initial investment is
$250,000 for each Fund, except that the minimum initial investment amount is
$500 for Prime Resource Account Holders. The minimum for subsequent investments
is $25, except that there is no minimum for automatic reinvestment of dividends
and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share of the Fund next determined after receipt of the redemption request. The
redemption price may be more or less than the purchase price. If a shareholder
reduces his/her total investment in shares of a Fund to less than $250,000, the
entire investment may be subject to involuntary redemption. See "Redemption of
Shares."
3
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GOVERNMENT
TAX-FREE OBLIGATIONS
MONEY MONEY MONEY
MARKET MARKET MARKET
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND
- --------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases...... None None None
Maximum Sales Load Imposed on Reinvested
Dividends................................... None None None
Maximum Deferred Sales Load.................. None None None
Redemption Fees.............................. None None None
Exchange Fees................................ None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (1)........ 0.33% 0.14% 0.18%
12b-1 Fees (after fee waivers) (1)........... 0.50% 0.35% 0.50%
Other Expenses............................... 0.15% 0.46% 0.27%
Total Operating Expenses (after expense
reimbursement and/or fee waiver)............ 0.98% 0.95% 0.95%
</TABLE>
- ------------------------------
(1) The Adviser and the Distributor will voluntarily waive a portion of their
respective fees and/or reimburse fund expenses until such time as they
determine that the particular Fund's performance is competitive with other
comparable funds without such waivers. However, such fee waivers are
voluntary and may be terminated at any time. There can be no assurances that
any future waivers will not vary from the figures reflected in the expense
table. Absent fee waivers, investment advisory fees would be 0.45% and 12b-1
fees would be 0.50% for each Fund and total operating expenses would be
1.10% for the Money Market Fund, 1.41% for the Tax-Free Money Market Fund
and 1.22% for the Government Obligations Money Market Fund. (Investment
advisory fees are contractually reduced when average daily net assets exceed
$250 million). For more information regarding the 12b-1 fees, see
"Management of the Company -- Distributor." Long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds will bear directly or
indirectly. The expenses and fees for the Money Market Fund and Government
Obligations Money Market Fund are based on actual figures for the fiscal year
ended June 30, 1998. The expenses and fees for the Tax-Free Money Market Fund,
which has not commenced investment operations, are based on the advisory
agreement, 12b-1 plan and estimates of other expenses assuming an average net
asset level for the first year of $50,000,000. "Other Expenses" include, among
others, Directors' fees and expenses, amortization of organizational costs,
filing fees, professional fees, and the costs for reports to shareholders.
The following example illustrates the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period.
<TABLE>
<CAPTION>
GOVERNMENT
TAX-FREE OBLIGATIONS
MONEY MONEY MONEY
MARKET MARKET MARKET
FUND FUND FUND
---------- ---------- ----------
<S> <C> <C> <C>
1 Year...................................................... $ 10 $ 10 $ 10
3 Years..................................................... 31 30 30
5 Years..................................................... 54 * 53
10 Years.................................................... 120 * 117
</TABLE>
- ------------------------
* Because the Tax-Free Money Market Fund has not commenced investment
operations as of the date of this Prospectus, the Company has not projected
expenses beyond the three-year period shown.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The Adviser and Distributor in their discretion may terminate voluntary
fee waivers and/or reimbursements at any time. Absent the waiver of fees or
reimbursement of expenses, the amounts in the example above would be greater.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Money Market and
Government Obligations Money Market Funds. For periods prior to September 26,
1996 financial highlights are shown for the PCS Money Market Portfolio and PCS
Government Obligations Money Market Portfolio (the "Predecessor Portfolios"),
the predecessors of the Morgan Stanley Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund, respectively. The financial highlights
for the shares for the fiscal year ended June 30, 1998 are part of the Company's
financial statements which appear in the Annual Report to Shareholders and the
Company's Statement of Additional Information. The Predecessor Portfolios'
financial highlights for the periods presented have been derived from financial
statements audited by Coopers & Lybrand L.L.P. All financial statements after
September 26, 1996 are audited by PricewaterhouseCoopers LLP or its predecessor
entities. Additional performance information about the Company is contained in
the Company's Annual Report and Semi-Annual Report. The Annual Report,
Semi-Annual Report and the Statement of Additional Information are available at
no cost from the Company at the address and telephone number noted on the cover
page of this Prospectus. The following financial highlights should be read in
conjunction with the financial statements and notes thereto. Financial
highlights are not presented for the Tax-Free Money Market Fund because it had
not commenced investment operations as of June 30, 1998.
5
<PAGE>
FINANCIAL HIGHLIGHTS
MONEY MARKET FUND
<TABLE>
<CAPTION>
LESS
NET ASSET NET REALIZED DISTRIBUTIONS LESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT FROM NET
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME REALIZED GAINS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED JUNE 30
1998 $1.00 0.0472 -- 0.0472 (0.0472) --
1997 $1.00 0.0450 -- 0.0450 (0.0450) --
1996 $1.00 0.0463 (0.0006) 0.0457 (0.0463) --
1995 $1.00 0.0446 0.0001 0.0447 (0.0446) (0.0001)
1994 $1.00 0.0246 -- 0.0246 (0.0246) --
1993 $1.00 0.0243 0.0001 0.0244 (0.0243) (0.0001)
1992 $1.00 0.0402 -- 0.0402 (0.0402) --
1991 $1.00 0.0652 -- 0.0652 (0.0652) --
1990 (2) $1.00 0.0690 -- 0.0690 (0.0690) --
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET RATIO OF NET
ASSETS AT RATIO OF INVESTMENT
NET ASSET END OF EXPENSES TO INCOME TO
TOTAL VALUE, END TOTAL PERIOD AVERAGE NET AVERAGE NET
DISTRIBUTIONS OF PERIOD RETURN (000) ASSETS(1) ASSETS(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED JUNE 30
1998 (0.0472) $1.00 4.83% $ 119,376 0.98% 4.72%
1997 (0.0450) $1.00 4.60% $ 138,422 0.98% 4.50%
1996 (0.0463) $1.00 4.72% $ 170,973 0.98% 4.65%
1995 (0.0447) $1.00 4.55% $ 171,515 0.98% 4.45%
1994 (0.0246) $1.00 2.49% $ 176,599 0.98% 2.45%
1993 (0.0244) $1.00 2.47% $ 156,310 0.98% 2.44%
1992 (0.0402) $1.00 4.11% $ 190,034 0.98% 3.97%
1991 (0.0652) $1.00 6.72% $ 140,594 0.98% 6.40%
1990 (2) (0.0690) $1.00 7.12%(3) $ 76,463 0.98%(3) 7.53%(3)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Without voluntary fee waiver of advisory and distribution fees, the ratios
of expenses to average net assets for the fiscal periods ended June 30, 1990
through June 30, 1998 would have been 1.48% (annualized), 1.27%, 1.27%,
1.20%, 1.19%, 1.18%, 1.22%, 1.27% and 1.10%, respectively. The ratio of net
investment income to average net assets for the fiscal periods ended June
30, 1990 through June 30, 1998 would have been, 7.03% (annualized), 6.11%,
3.68%, 2.22%, 2.24%, 4.25%, 4.41%, 4.20% and 4.61%, respectively.
(2) Commenced operations on August 4, 1989.
(3) Annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
LESS
NET ASSET NET REALIZED DISTRIBUTIONS LESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT FROM NET
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME REALIZED GAIN
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED JUNE 30
1998 $1.00 0.0469 -- 0.0469 (0.0469) --
1997 $1.00 0.0443 -- 0.0443 (0.0443) --
1996 $1.00 0.0464 (0.0011) 0.0453 (0.0464) (0.0001)
1995 $1.00 0.0448 -- 0.0448 (0.0448) --
1994 $1.00 0.0243 0.0011 0.0254 (0.0243) (0.0011)
1993 $1.00 0.0246 0.0002 0.0248 (0.0246) (0.0002)
1992 (2) $1.00 0.0094 -- 0.0094 (0.0094) --
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET RATIO OF NET
ASSETS AT RATIO OF INVESTMENT
NET ASSET END OF EXPENSES TO INCOME TO
TOTAL VALUE, END TOTAL PERIOD AVERAGE NET AVERAGE NET
DISTRIBUTIONS OF PERIOD RETURN (000) ASSETS(1) ASSETS(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED JUNE 30
1998 (0.0469) $1.00 4.79% $ 56,302 0.95% 4.64%
1997 (0.0443) $1.00 4.53% $ 94,768 0.95% 4.43%
1996 (0.0465) $1.00 4.72% $ 145,978 0.95% 4.68%
1995 (0.0448) $1.00 4.58% $ 67,505 0.95% 4.61%
1994 (0.0254) $1.00 2.45% $ 102,551 0.95% 2.40%
1993 (0.0248) $1.00 2.51% $ 101,736 0.95% 2.50%
1992 (2) (0.0094) $1.00 0.94%(3) $ 269,627 0.95%(4) 3.07%(4)
- ---------------------------------- ---------------------------------------------------------------------------------
</TABLE>
(1) Without voluntary fee waiver of advisory and distribution fees, the ratios
of expenses to average net assets for the fiscal periods ended June 30, 1992
through June 30, 1998, would have been 1.29% (annualized), 1.19%, 1.22%,
1.12%, 1.24%, 1.27% and 1.22%, respectively. The ratio of net investment
income to average net assets for the fiscal periods ended June 30, 1992
through June 30, 1998, would have been 2.73% (annualized), 2.26%, 2.13%,
4.44%, 4.39%, 4.10% and 4.38%, respectively.
(2) Commenced operations on March 12, 1992.
(3) Not annualized. Total return on an annualized basis would have been 3.16%
for the Government Obligations Money Market Fund.
(4) Annualized.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. There can be no assurance that
a Fund will attain its investment objective. For more information about certain
investment practices common to two or more of the Funds and applicable quality
requirements, see "Additional Investment Information."
THE MONEY MARKET FUND
The Money Market Fund's investment objective is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. Obligations held by the Money Market Fund will have
remaining maturities of 397 days or less (except that portfolio securities which
are subject to repurchase agreements may bear maturities exceeding 397 days). In
pursuing its investment objective, the Money Market Fund invests in a broad
range of U.S. dollar-denominated instruments, such as government, bank and
commercial obligations, that may be available in the money markets and that
satisfy strict credit quality standards imposed by the Fund in accordance with
applicable law ("Money Market Instruments"). The following descriptions
illustrate the types of Money Market Instruments in which the Money Market Fund
invests.
BANK OBLIGATIONS. The Fund may purchase bank obligations, such as
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Fund may invest in U.S. dollar-denominated
obligations of foreign banks or foreign branches of U.S. banks where the
Sub-Adviser deems the instrument to present minimal credit risks and to
otherwise satisfy applicable quality standards. Such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Fund.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The Fund
may also make interest-bearing savings deposits in commercial and savings banks
in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" or "A-1+" by Standard & Poor's Ratings Group ("S&P") or
"Prime-1" by Moody's Investors Service, Inc. ("Moody's") or, when deemed
advisable by the Sub-Adviser and to the extent permitted under applicable
regulations, limited amounts of issues rated "A-2" or "Prime-2" by S&P or
Moody's, respectively that the Sub-Adviser believes to be of high quality. The
Fund may also purchase commercial paper not rated by S&P or Moody's provided
that such paper is determined by the Sub-Adviser to be of comparable quality
pursuant to guidelines approved by the Company's Board of Directors. The
applicable short-term corporate ratings are described in the Statement of
Additional Information.
UNITED STATES GOVERNMENT OBLIGATIONS. The Money Market Fund may invest in
obligations issued or guaranteed by the United States Government, including
United States Treasury securities and other securities backed by the full faith
and credit of the United States, such as obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration and the
Export-Import Bank. The Fund may also invest in obligations issued or guaranteed
by United States Government agencies or instrumentalities, such as the Federal
Farm Credit System and the Federal Home Loan Banks, where the Fund must look
principally to the issuing or guaranteeing agency for ultimate repayment. For a
more complete discussion of United States Government Obligations, see the
description of the Government Obligations Money Market Fund.
8
<PAGE>
MUNICIPAL OBLIGATIONS. "Municipal Obligations" are obligations issued by or
on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. The Fund may invest without limitation in
high quality, short-term Municipal Obligations issued by state and local
governmental issuers, the interest on which may be taxable or tax-exempt for
federal income tax purposes, when deemed appropriate by the Sub-Adviser in light
of the Fund's investment objective, and provided that such obligations carry
yields that are competitive with those of other types of Money Market
Instruments of comparable quality. For a more complete discussion of Municipal
Obligations, see the description of the Tax-Free Money Market Fund. In addition,
the Fund may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio.
THE TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund's investment objective is to provide as high
a level of current interest income exempt from regular federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Tax-Free Money Market Fund invests substantially all of its assets in a
diversified portfolio of high quality, short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular federal income tax. It is a
fundamental policy of the Fund that under normal market conditions, at least 80%
of the net assets of the Tax-Free Money Market Fund will be invested in
short-term Municipal Obligations, the interest on which is exempt from regular
federal income tax and is not an item of tax preference for noncorporate
shareholders for purposes of the alternative minimum tax ("Tax-Exempt
Interest"). All portfolio investments must satisfy strict credit quality
standards imposed by the Company in accordance with applicable law.
MUNICIPAL OBLIGATIONS. The Fund invests in short-term Municipal Obligations
which are determined by the Sub-Adviser to present minimal credit risks and to
otherwise satisfy applicable quality standards pursuant to guidelines
established by the Company's Board of Directors and which at the time of
purchase are considered to be "first-tier" securities e.g., rated "AAA" or
higher by S&P or "Aaa" or higher by Moody's in the case of bonds; rated "SP-1"
by S&P or "MIG-1" by Moody's in the case of notes; rated "VMIG-1" by Moody's in
the case of variable rate demand notes; or rated "A-1" or "A-1+" by S&P or
"Prime-1" by Moody's in the case of tax-exempt commercial paper. The Fund may
also purchase securities that are not rated by S&P or Moody's at the time of
purchase provided that the securities are determined to be of comparable quality
by the Sub-Adviser pursuant to guidelines approved by the Company's Board of
Directors. The applicable Municipal Obligations ratings are described in the
Statement of Additional Information.
The Fund may hold uninvested cash reserves pending investment, during
temporary defensive periods or if, in the opinion of the Sub-Adviser, suitable
obligations bearing Tax-Exempt Interest are unavailable. There is no percentage
limitation on the amount of assets which may be held uninvested during temporary
defensive periods. Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Municipal Obligations
may also include "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer of moral obligation bonds is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer. Municipal
Obligations may include variable rate demand notes, which are described below
under "Additional Investment Information."
9
<PAGE>
Current federal income tax law limits the types and volume of bonds
qualifying for the federal income tax exemption of interest. Such limitations
may have an effect on the ability of the Fund to purchase sufficient amounts of
tax-exempt securities. In addition, interest on certain bonds, although exempt
from the regular federal income tax, may be subject to alternative minimum tax.
See the discussion below under "Taxes" and the Statement of Additional
Information.
Although the Tax-Free Money Market Fund may invest more than 25% of its net
assets in (i) Municipal Obligations whose issuers are in the same state, (ii)
Municipal Obligations the interest on which is paid solely from revenues of
similar projects and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Tax-Free Money Market Fund's assets are concentrated in Municipal Obligations
that are payable from issuers of the same state or the revenues of similar
projects, the Fund will be subject to the peculiar risks presented by the laws
and economic conditions relating to such states or projects to a greater extent
than it would be if its assets were not so concentrated.
THE GOVERNMENT OBLIGATIONS MONEY MARKET FUND
The Government Obligations Money Market Fund's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing at least 65% of its net assets, under normal market
conditions, in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and entering into repurchase agreements relating to such obligations. Purchases
of portfolio securities must satisfy strict credit quality standards imposed by
the Fund in accordance with applicable law. The types of U.S. Government
obligations in which the Fund may invest include a variety of U.S. Treasury
obligations, which differ only in their interest rates, maturities, and time of
issuance, and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including mortgage-backed securities. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as GNMA
and the Export-Import Bank of the United States, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of Fannie Mae, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Fund will
invest in the obligations of such agencies or instrumentalities only when the
Sub-Adviser believes that the credit risk with respect thereto is minimal and
that applicable quality standards have been satisfied.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares
representing an interest in the Fund. Certain government securities held by the
Fund may have remaining maturities exceeding 397 days if such securities provide
for adjustments in their interest rates not less frequently than annually and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values.
ADDITIONAL INVESTMENT INFORMATION
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
Each Fund may invest up to 10% of the value of its net assets in illiquid
securities, which are securities that cannot be disposed of within seven
business days at approximately the price they are being carried on a Fund's
books. Illiquid securities generally include securities that are restricted from
sale to the public without registration under the Securities Act of 1933, as
amended (the "1933 Act"); however, securities which are offered and sold to
qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid pursuant to procedures approved by
the Company's Board of Directors are not subject to the limitation on illiquid
securities. Factors used to determine whether 144A Securities are liquid
include,
10
<PAGE>
among other things, a security's trading history, availability of reliable
pricing information, the number of dealers making quotes or making a market in
the security and the number of potential purchases in the market for the
security. To the extent that qualified institutional buyers become uninterested
in buying 144A Securities, then such securities in a Fund's portfolio could
increase a Fund's level of illiquidity. Each Fund may also invest in commercial
paper sold without restriction pursuant to Section 4(2) of the 1933 Act.
LOANS OF PORTFOLIO SECURITIES
The Money Market and Government Obligations Money Market Funds may lend its
securities to brokers, dealers, domestic and foreign banks or other financial
institutions for the purpose of increasing its net investment income. These
loans must be secured continuously by cash or equivalent collateral or by a
letter of credit at least equal to the market value of the securities loaned
plus accrued interest. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in collateral should the borrower of
the portfolio securities fail financially. The Funds will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of a Fund's total assets.
MORTGAGE-BACKED SECURITIES
The Money Market and Government Obligations Money Market Funds may invest in
mortgage-backed securities. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-backed securities."
One such type of mortgage-backed security in which the Funds may invest is a
GNMA Certificate. GNMA Certificates are backed as to the timely payment of
principal and interest by the full faith and credit of the U.S. Government.
Another type is a Fannie Mae Certificate. Principal and interest payments on
Fannie Mae Certificates are guaranteed only by Fannie Mae itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-backed
security in which such Funds may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but, like a
Fannie Mae security, it is not guaranteed by the full faith and credit of the
U.S. Government.
Each of the mortgage-backed securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as a Fund), like the payments on the underlying loans, represent
both principal and interest. Although the underlying mortgage loans are for
specified periods of time, such as twenty or thirty years, the borrowers can,
and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. 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 a Fund's higher yielding securities might be
repaid and thereby converted to cash and the Fund will be forced to accept lower
interest rates when that cash is used to purchase additional securities. A Fund
normally will not distribute principal payments (whether regular or prepaid) to
its shareholders. Interest received by each Fund will, however, be distributed
to shareholders in the form of dividends.
REPURCHASE AGREEMENTS
The Money Market and Government Obligations Money Market Funds may enter
into repurchase agreements with brokers, dealers, banks or other financial
institutions that meet the credit guidelines set by the Company's Board of
Directors. In a repurchase agreement, a Fund buys a security from a seller that
has agreed to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. The term of these
agreements is usually from overnight to one week and never exceeds one year. A
repurchase agreement may be viewed as a fully collateralized loan of money by a
Fund to the seller. A Fund always receives securities as collateral with a
market value at least equal to the purchase price, including accrued interest,
and this value is maintained during the term of the agreement. If the seller
defaults and the collateral
11
<PAGE>
value declines, a Fund might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Fund's realization upon the collateral
may be delayed or limited. The aggregate of certain repurchase agreements and
certain other investments is limited as set forth under "Investment
Limitations."
REVERSE REPURCHASE AGREEMENTS
The Money Market and Government Obligations Money Market Funds may enter
into reverse repurchase agreements with brokers, dealers, banks or other
financial institutions that meet the credit guidelines set by the Company's
Board of Directors. In a reverse repurchase agreement, a Fund sells a security
and agrees to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. It may also be viewed
as the borrowing of money by the Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is a speculative factor known as leverage. A Fund
will enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with an appropriate custodian a
separate account with a segregated portfolio of cash or other liquid securities
in an amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a Fund's ability to maintain a stable net
asset value. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the buyer or its
trustee or receiver may receive an extension of time to determine whether to
enforce a Fund's repurchase obligation, and the Fund's use of proceeds of the
agreement may effectively be restricted pending such decision.
STAND-BY COMMITMENTS
The Money Market and Tax-Free Money Market Funds may each acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Obligations at a specified price. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
Municipal Obligations to which such commitment relates. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
VARIABLE RATE DEMAND NOTES
The Money Market and Tax-Free Money Market Funds may purchase variable rate
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, a Fund will be able (at any time or during the specified
periods not exceeding 397 days, depending upon the note involved) to demand
payment of the principal of a note. The notes are frequently not rated by credit
rating agencies, but notes not rated by S&P or Moody's purchased by a Fund will
have been determined by the Sub-Adviser to be of comparable quality at the time
of the purchase to rated instruments purchasable by the Fund. Where necessary to
ensure that a note is of sufficiently high quality, a Fund will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
The absence of an active secondary market, however, could make it difficult for
a Fund to dispose of a variable rate demand note if the issuer defaulted on its
payment obligation or during the periods that the Fund is not entitled to
exercise its demand rights. A Fund could, for this or other reasons, suffer a
loss to the extent of the default. A Fund will invest in variable rate demand
notes only when the Sub-Adviser deems the investment to involve minimal credit
risk and to otherwise satisfy applicable quality standards. The Sub-Adviser also
monitors the continuing creditworthiness of issuers of such notes to determine
whether a Fund should continue to hold such notes.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Money Market Fund and Government Obligations Money Market Fund may
purchase securities on a when-issued or delayed delivery basis. In such
transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. The payment obligation and the interest
rates that will be received are each fixed at the time a
12
<PAGE>
Fund enters into the commitment, and no interest accrues to the Fund until
settlement. Thus, it is possible that the market value at the time of settlement
could be higher or lower than the purchase price if the general level of
interest rates has changed. It is a current policy of each Fund not to enter
into when-issued commitments or delayed delivery securities exceeding, in the
aggregate, 25% of the Fund's net assets other than the obligations created by
these commitments.
QUALITY INFORMATION
The Funds utilize the amortized cost method of valuation in accordance with
regulations issued by the Securities and Exchange Commission ("SEC"). See
"Valuation of Shares." Accordingly, each Fund will limit its portfolio
investments to those instruments which present minimal credit risks and which
are of eligible quality, as determined by the Sub-Adviser under the supervision
of the Board of Directors and in accordance with regulations of the SEC, as such
regulations may from time to time be amended. Eligible quality for this purpose
means a security (i) rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs")
assigning a rating to the security or issuer or, if only one rating organization
assigned a rating, by that rating organization or (ii) if unrated, determined to
be of comparable quality by the Sub-Adviser under the supervision of the Board
of Directors. Each of the Government Obligations Money Market and Money Market
Funds will not invest more than 5% of its total assets in securities of issuers
having the second highest rating from any NRSRO; and these Funds will not invest
more than the greater of one percent of its total assets or $1 million in
securities issued by an issuer, having at the time of acquisition or roll over,
the second highest rating from any NRSRO. The Tax-Exempt Money Market Fund will
not invest more than 5% of its total assets in conduit securities (not subject
to unconditional demand features) of issuers having the second highest rating
from any NRSRO. Additionally, the Tax-Exempt Money Market Fund will not invest
more than the greater of one percent of its total assets or $1 million in
conduit securities (not subject to unconditional demand features) of an issuer
which, at the time of acquisition or roll over, has the second highest rating
from an NRSRO. Among the criteria adopted by the Board of Directors, a Fund will
not purchase any bank or corporate obligation unless it is rated at least Aa or
Prime-1 by Moody's or AA, A-1+ or A-1 by S&P or, if not rated by S&P or Moody's,
it is determined to be of comparable quality by the Sub-Adviser under the
supervision of the Board of Directors. Ratings, however, are not the only
criteria utilized under the procedures adopted by the Board of Directors.
These quality standards must be satisfied at the time an investment is made.
In the event that an investment held by the Fund is assigned a lower rating or
ceases to be rated, the Sub-Adviser, under the supervision of the Board of
Directors, will promptly reassess whether such security presents minimal credit
risks and whether the Fund should continue to hold the security in its
portfolio. If a portfolio security no longer presents minimal credit risks, is
in default or its rating is downgraded to below the second highest rating
category, the Fund will dispose of the security as soon as reasonably
practicable unless the Board of Directors determines that to do so is not in the
best interests of the Fund.
YEAR 2000 RISKS
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact upon the Funds. In addition, the Year
2000 Problem may adversely affect the issuers of securities in which the Funds
may invest which, in turn, may adversely affect the net asset values of the
Funds.
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<PAGE>
INVESTMENT LIMITATIONS
Each Fund is a diversified investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"), and therefore, with respect to 75% of
its total assets: (a) such Fund may not invest more than 5% of its total assets
in the securities of any one issuer, except obligations of the U.S. Government,
its agencies and instrumentalities, and (b) such Fund may not own more than 10%
of the outstanding voting securities of any one issuer. Under regulations
applicable to money market funds, however, a Fund may invest more than 5% of its
assets in any one issuer of "first tier" securities for no more than three days.
The Money Market Funds also operate under certain investment restrictions
that are deemed fundamental policies and may be changed only with the approval
of the holders of a majority of the respective Fund's outstanding shares. In
addition to other restrictions listed in the Statement of Additional
Information, a Fund may not (i) enter into repurchase agreements with more than
seven days to maturity if, as a result, more than 10% of the market value of its
net assets would be invested in these agreements and other investments for which
market quotations are not readily available or which are otherwise illiquid; or
(ii) invest more than 25% of the Fund's total assets in securities of companies
in any one industry, except that there is no limitation with respect to
investments in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or, for the Money Market Fund, obligations of U.S.
banks or their domestic branches. See "Investment Limitations" in the Statement
of Additional Information. In addition, the Funds operate under certain
non-fundamental investment limitations as described in the Statement of
Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Funds.
The Adviser provides investment advice and portfolio management services
pursuant to an advisory agreement (the "Advisory Agreement") and subject to the
supervision of the Company's Board of Directors, makes the Funds' investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Funds' investments. The Advisory Agreement also provides that the
Adviser may appoint sub-advisers to perform these portfolio management
responsibilities. See "Investment Sub-Adviser" below. The Adviser is entitled to
receive an aggregate advisory fee computed daily and paid monthly at the
following annual rates for each Fund:
<TABLE>
<CAPTION>
NET ASSETS ABOVE
NET ASSETS UP TO $250 MILLION UP NET ASSETS EXCEEDING
$250 MILLION TO $500 MILLION $500 MILLION
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Money Market Fund........................................ 0.45% 0.40% 0.35%
Tax-Free Money Market Fund............................... 0.45% 0.40% 0.35%
Government Obligations Money Market Fund................. 0.45% 0.40% 0.35%
</TABLE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of the Funds' other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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,
14
<PAGE>
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange commodities and swaps (including foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending; and credit services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Funds. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Funds' investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Funds' investments.
The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If a
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had, together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and transfer agent
services. For its services under the Administration Agreement, the Company pays
the Administrator a monthly fee which on an annual basis equals 0.10% of the
first $200 million of the Funds' average daily net assets, 0.075% on the next
$200 million of average daily net assets, 0.05% on the next $200 million of
average daily net assets, and 0.03% on the average daily net assets over $600
million of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, MA 02108-3913. PFPC, Inc., under an agreement with the Administrator,
will perform as sub-transfer agent and dividend disbursing agent for Prime
Resource Account Holders. Van Kampen Investor Services Inc. ("Investor
Services"), under an agreement with the Administrator, will perform as
sub-transfer agent and dividend disbursing agent for all other shareholders. For
additional information on the Administration Agreement, see "Management of the
Company" in the Statement of Additional Information.
15
<PAGE>
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Sub-Adviser, Administrator and
Distributor. The officers of the Company conduct and supervise its daily
business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Funds upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Funds.
Each Fund currently offers only one class of shares. The Company may in the
future offer one or more classes of shares for each Fund that may have sales
charges or other distribution charges or a combination thereof different than
the class currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for the Funds pursuant to Rule
12b-1 under the 1940 Act (the "Plan"). Under the Plan, the Distributor is
entitled to receive from each Fund a distribution fee, which is accrued daily
and paid no more frequently than monthly, of up to 0.50% for each of the Funds
on an annualized basis of the average daily net assets of each Fund. The
Distributor expects to reallocate most of its fee to investment dealers, banks
or financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers"). The actual amount of such
compensation is based upon the expenses incurred by the Distributor. The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.
The Plan obligates the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plan does not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under the Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
The Plan, under the terms of Rule 12b-1, will remain in effect only if
approved at least annually by the Company's Board of Directors, including those
directors who are not "interested persons" of the Company as that term is
defined in the 1940 Act and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related thereto ("12b-1
Directors"). The Plan may be terminated at any time by a vote of a majority of
the 12b-1 Directors or by a vote of a majority of the outstanding voting
securities of the applicable class of a Fund. The fee set forth above will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed. The Company intends to operate the Plan in accordance with its
terms and the NASD Conduct Rules concerning sales charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the the
Funds or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services. The Adviser may elect to
enter into a contract to pay the financial institutions for such services.
EXPENSES. The Funds are responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL. Each Fund offers one class of shares to the public on a continuous
basis at net asset value per share without any sales charge through the
Distributor as principal underwriter, which is located at One
16
<PAGE>
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers." Shares are also offered through
Morgan Stanley & Co. to Prime Resource Account Holders.
The minimum initial investment is $250,000, except that the minimum initial
investment amount for Prime Resource Account Holders is $500. The minimum for
subsequent investments is $25 and there is no minimum for automatic reinvestment
of dividends and distributions. The Distributor may waive the investment
minimums in its sole discretion. The Company in its sole discretion may accept
or reject any order for purchases of shares.
PURCHASES BY PRIME RESOURCE ACCOUNT HOLDERS
GENERAL. Prime Resource Account Holders are account holders who open a
prime resource account with Morgan Stanley & Co. A prime resource account is a
cash management account offering such features as check writing privileges,
automatic sweep of all cash balances into a Money Market Fund and a Visa Gold
credit card. Pursuant to the sweep feature, Prime Resource Account Holders will
be permitted to purchase shares of the Money Market Funds. Prime resource
accounts are available only to clients of broker-dealers who use Morgan Stanley
& Co. as their clearing firm. Investors may purchase shares through an account
maintained by the investor with his brokerage firm (an "Account").
All payments for initial and subsequent investments should be in U.S.
Dollars. Purchases will be effected at the net asset value per share next
determined after PFPC, Inc. (the "Sub-Transfer Agent"), has received a purchase
order in proper form and the Company's custodian has Federal Funds immediately
available to it.
PURCHASES THROUGH A PRIME RESOURCE ACCOUNT. Share purchases may be effected
through an investor's account with his broker through procedures established in
connection with the requirements of Accounts at such broker.
In such event, beneficial ownership of shares will be recorded by the broker
and will be reflected in the account statements provided by the broker to such
investors. A broker may impose minimum investor account requirements. Although a
broker does not impose a sales charge for purchases of shares, depending on the
terms of an investor's account with his broker, the broker may charge an
investor's account fees for automatic investment and other service provided to
the Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker. This Prospectus should be read in
conjunction with any information received from a broker.
A broker may offer investors maintaining Accounts the ability to purchase
shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have their "free-credit" cash balances in their Account automatically invested
in shares of the Fund which they have designated (the "Designated Fund") under
the Purchase Program. The frequency of investments and the minimum investment
requirement will be established by the broker and the Company. In addition, the
broker may require a minimum amount of cash and/or securities to be deposited in
an Account for participants in its Purchase Program. The description of the
particular broker's Purchase Program should be read for details, and any
inquiries concerning an Account under a Purchase Program should be directed to
the broker. A participant in a Purchase Program may change the designation Fund
at any time by so instructing his broker.
If a broker makes special arrangements under which orders for shares are
received by the Sub-Transfer Agent prior to 12:00 noon (Eastern Time) on any day
that the New York Stock Exchange (the "NYSE") and Federal Reserve Banks are open
for business (a "Business Day"), and the broker guarantees that payment for such
shares will be made in Federal Funds to the Company's custodian prior to 4:00
p.m. (Eastern Time), on the same day, such purchase orders will be effective,
and shares will be purchased at the offering price in effect, as of 12:00 p.m.
(Eastern Time) on the date the purchase order is received by the Sub-Transfer
Agent. Purchase
17
<PAGE>
orders received after 12:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern
Time), on any Business Day for which payment in Federal Funds has been received
by 4:00 p.m. (Eastern Time), will be effective, and shares will be purchased at
the offering price in effect, as of 4:00 p.m. (Eastern Time) the same day.
FOR PRIME RESOURCE ACCOUNT HOLDERS, INFORMATION ON EACH FUND CAN BE OBTAINED
BY CALLING THE SUB-TRANSFER AGENT AT 1-800-533-7719.
PURCHASES BY ALL OTHER SHAREHOLDERS
GENERAL. Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to Investor Services, a wholly-owned subsidiary of Van
Kampen.
The price paid for shares purchased is based on the next calculation of net
asset value per share after an order is received by a Participating Dealer and
transmitted to the Distributor. If the Distributor receives a purchase order
prior to 12:00 noon (Eastern Time) and receives payment in Federal Funds prior
to 4:00 p.m. (Eastern Time) on any day that the NYSE and Federal Reserve Banks
are open for business (a "Business Day"), shares will be purchased at the
offering price in effect as of 12:00 p.m. (Eastern Time) on the date the
purchase order is received by a Participating Dealer. Purchase orders received
after 12:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern Time), on any
Business Day for which payment in Federal Funds has been received by 4:00 p.m.
(Eastern Time), will be effective, and shares will be purchased at the offering
price in effect, as of 4:00 p.m. (Eastern Time) the same day provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. Orders received by Participating Dealers after the close of the
NYSE are priced based on the net asset value per share next calculated provided
they are received by the Distributor prior to the Distributor's close of
business on such day. It is the responsibility of Participating 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 Participating
Dealer and processed at the offering price next calculated after acceptance by
Investor Services.
OTHER PURCHASE INFORMATION
Purchase of shares of the Funds by check is credited to your account at the
price next determined after receipt of Federal Funds on the day of receipt and
will begin receiving dividends the following day. If you purchase shares of a
Fund directly, you must make payment by check or Federal Funds to effect your
purchase of the shares and obtain the price for the shares as described above.
Purchasing shares of a Fund is different from placing a trade for securities at
a given price and having a certain number of days in which to make settlement or
payment for the securities.
To ensure that checks are collected by the Company, withdrawals of
investments made by check will not be forwarded until the Company's depository
bank has made fully available for withdrawal the check amount used to purchase
Company shares, which generally will be within 15 days. As a condition of this
offering, if a purchase is canceled due to nonpayment or because your check does
not clear, you will be responsible for any loss the Company and/or its agents
incur. If you are already a shareholder, the Company may redeem shares from your
account(s) to reimburse the Company and/or its agents for any loss. In addition,
you may be prohibited or restricted from making future purchases in the Company.
SHAREHOLDER SERVICES RELATED TO PURCHASES (Shareholders Other Than Prime
Resource Account Holders)
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Investor Services performs bookkeeping, data processing
and administration services related to the maintenance of shareholder accounts.
Each shareholder has an investment account under which shares are held by
Investor Services. Except as described herein, after each share transaction in
an account, the shareholder receives a statement showing the activity in the
account. Each shareholder will receive statements at least quarterly from
Investor Services showing any reinvestments of dividends and capital gains
distributions and any other
18
<PAGE>
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 brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value per share on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, or in writing to Investor Services. The investor may, on the initial
application or prior to any declaration, instruct that dividends be paid in cash
and capital gains distributions be reinvested at net asset value, or that both
dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Funds. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404, or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on shares of
the Company invested into shares of any other Participating Fund, so long as a
pre-existing account exists for such shareholder. Both accounts must also be of
the same type, either non-retirement or retirement. Any two non-retirement
accounts can be used. If the accounts are retirement accounts, they must both be
for the same type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and
for the benefit of the same individual. The phrase "Participating Funds," as
used herein, refers to certain open-end investment companies advised by the
Adviser or Van Kampen Asset Management Inc. ("Asset Management") and distributed
by the Distributor as determined from time to time by the Company's Board of
Directors.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the Participating Fund into which distributions would be invested. Distributions
are invested into the selected fund at its net asset value per share as of the
payable date of the distribution only if shares of such selected fund have been
registered for sale in the investor's state and are currently available for
sale.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the value of the issued shares and bill the party to
whom the replacement certificate was mailed.
SYSTEMATIC WITHDRAWAL PLAN. A shareholder, other than a Prime Resource
Account Holder, 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. A shareholder, other than a
Prime Resource Account Holder, whose shares in a single account total $10,000 or
more at the offering price next computed after receipt of instructions may
establish a monthly, quarterly, semi-annual or annual withdrawal plan. This plan
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<PAGE>
provides for the orderly use of the entire account, not only the income but also
the principal, if necessary. Each withdrawal constitutes a redemption of shares
on which taxable gain or loss will be recognized. The plan holder may arrange
for monthly, quarterly, semi-annual, or annual checks in any amount not less
than $25.
Under the plan, sufficient shares of the Company 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.
The Company reserves the right to amend or terminate the systematic withdrawal
program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. A shareholder, other than a
Prime Resource Account Holder, can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing to Investor Services or by calling (800) 282-4404. A shareholder's bank
may charge a fee for ACH transfers.
FOR SHAREHOLDERS OTHER THAN PRIME RESOURCE ACCOUNT HOLDERS, INFORMATION ON
EACH FUND CAN BE OBTAINED BY CALLING THE TRANSFER AGENT AT 1-800-282-4404.
SHAREHOLDER SERVICES
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); Simplified Employee Pension ("SEP") Plans; pension and profit
sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of employees
of public school systems and certain non-profit organizations. Documents and
forms containing detailed information regarding these plans are available from
the Distributor. Van Kampen 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.
EXCHANGE PRIVILEGE. Shares of a Fund may be exchanged with shares of
another Money Market Fund, subject to certain limitations. SHAREHOLDERS MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE
AND ARE CURRENTLY AVAILABLE FOR SALE.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684 or (800) 772-8889 for the hearing impaired. A shareholder
automatically has telephone exchange privileges unless otherwise designated in
the application form accompanied by this Prospectus. See "Redemption of Shares
- -- Telephone Transaction Procedures" for more information. The exchange will
take place at the relative net asset value per share of the shares next
determined after receipt of such request. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. Exchanges of
shares are sales and may result in a gain or loss for federal income tax
purposes. 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 options) and broker, dealer or financial intermediary of record
as the account
20
<PAGE>
from which shares are exchanged, unless otherwise specified by the shareholder.
In order to establish a systematic withdrawal plan for the new account or
dividend diversification options for the new account, an exchanging shareholder
must file a specific written request. The Company reserves the right to reject
any order to acquire its shares through exchange. In addition, the Company may
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.
REDEMPTION OF SHARES
REDEMPTION PROCEDURES Redemption orders are effected at the net asset value
per share next determined after receipt of the order in proper form by the
Sub-Transfer Agent. Investors may redeem all or some of their shares in
accordance with one of the procedures described below.
REDEMPTIONS BY PRIME RESOURCE ACCOUNT HOLDERS
REDEMPTION OF SHARES IN A PRIME RESOURCE ACCOUNT. Investors who
beneficially own shares may redeem such shares in their Accounts in accordance
with instructions and limitations pertaining to their Accounts by contacting
their brokers. If such notice is received by the Sub-Transfer Agent by 12:00
noon (Eastern Time) on any Business Day, the redemption will be effective as of
12:00 noon (Eastern Time) on that day. Payment of the redemption proceeds will
be made after 12:00 noon (Eastern Time) on the day the redemption is effected,
provided that PNC Bank, N.A. (the "Custodian") is open for business. If the
Custodian is not open, payment will be made on the next bank business day. If
the redemption request is received after 12:00 noon but before 4:00 p.m.
(Eastern Time), the redemption will be effected as of 4:00 p.m. (Eastern Time)
on that day and payment of the redemptions proceeds will be made after 12:00
noon (Eastern Time) on the next Business Day after the
21
<PAGE>
redemption is effected, provided that the Custodian is open for business. If the
Custodian is not open, payment will be made on the next bank business day. If
all shares are redeemed, all accrued but unpaid dividends on those shares will
be paid with the redemption proceeds.
An investor's brokerage firm will also redeem each day a sufficient number
of shares of the designated Fund to cover debit balances created by transactions
in the Account or instructions for cash disbursements. Fund shares will be
redeemed on the same day that a transaction occurs that results in such a debit
balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION BY CHECK. Upon request, the Company will provide any Prime
Resource Account Holder with forms of drafts ("checks") payable through the
Custodian. These checks may be made payable to the order of anyone. The minimum
amount of a check is $500. An investor wishing to use this check writing
redemption procedure should complete specimen signature cards, and then forward
such signature cards to the investor's broker or in accordance with the broker's
instructions. Upon receipt, the Sub-Transfer Agent will then arrange for the
checks to be honored by the Custodian. Investors who own shares through an
Account should contact their brokers for signature cards. Investors with joint
accounts may elect to have checks honored with a single signature. Check
redemptions will be subject to the Custodian's rules governing checks. An
investor will be able to stop payment on a check redemption. The Company or
Sub-Transfer Agent may terminate this redemption service at any time, and shall
not incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to the Custodian for clearance, the Custodian, as
the investor's agent, will cause the Company to redeem a sufficient number of
full and fractional shares owned by the investor to cover the amount of the
check at the redemption price next determined after the redemption requested is
presented. Checks may not be presented for cash payment at the offices of the
Custodian.
REDEMPTION BY ALL OTHER SHAREHOLDERS
Shareholders may redeem for cash some or all of their shares without charge
by the Company at any time by sending a written request in proper form directly
to the Fund c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City,
Missouri 64141-9256, by placing the redemption request through Participating
Dealer or by calling the Company.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the account number and be signed exactly as
the shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would 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.
If certificates are held for the shares being redeemed, such certificates must
be endorsed for transfer or accompanied by an endorsed stock power and sent with
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. The redemption price is the net
asset value per share next determined after the request is received by Investor
Services in proper form. Payment for shares redeemed will ordinarily be made by
check mailed within seven business days after acceptance by Investor Services of
the request and any other necessary documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via
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<PAGE>
the FUNDSERV network. The redemption price for such shares is the net asset
value per share next calculated after an order is received by a dealer provided
such order is transmitted to the Distributor prior to the Distributor's close of
business on such day. It is the responsibility of dealers to transmit redemption
requests received by them to the Distributor so they will be received prior to
such time. Any change in the redemption price due to failure of the Distributor
to receive a redemption request prior to such time must be settled between the
shareholder and dealer. Shareholders must submit a written redemption request in
proper form (as described above under "Written Redemption Requests") to the
dealer within three business days after calling the dealer with the redemption
request. Payment for shares redeemed will ordinarily be made by check mailed
within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 282-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
12:00 noon, Eastern Time, on a regular business day or 4:00 p.m., Eastern Time,
on a regular business day will be processed at the net asset value per share
determined at 12:00 noon, Eastern Time or 4:00 p.m., Eastern Time, respectively,
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, Investor
Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record or bank account has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
by the Directors. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share. Any involuntary redemption may only occur
if the shareholder account is less than the minimum initial investment due to
shareholder redemptions.
IRA redemption requests should be sent to the IRA custodian to be forwarded
to Investor Services. Where Van Kampen Trust Company serves as IRA Custodian,
special IRA, 403(b)(7), or Keogh redemption forms must be obtained from and be
forwarded to Van Kampen Trust Company, P.O. Box 944, Houston, Texas 77001-0944.
Contact the Custodian for information.
23
<PAGE>
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. VK and the Funds 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 VK nor the Funds will be liable for following instructions which it
reasonably believes to be genuine. VK and the Funds may be liable for any losses
due to unauthorized or fraudulent instructions if reasonable procedures are not
followed.
VALUATION OF SHARES
The net asset value per share of each of the Funds is determined at 12:00
p.m. (Eastern Time) and 4:00 p.m. (Eastern Time) on the days on which the NYSE
and the Custodian are open. For the purpose of calculating the Fund's net asset
value per share, securities are valued by the "amortized cost" method of
valuation, which does not take into account unrealized gains or losses. This
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument.
PERFORMANCE INFORMATION
From time to time the Funds may advertise "yield," and may advertise
"effective yield." Yield figures are based on historical performance and are not
intended to indicate future performance. The "yield" of such Funds refers to the
income generated by an investment in the Funds over a seven-day period and the
income generated over the seven-day period is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned on an investment in a Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The Tax-Free Money Market Fund
may also quote its "tax-equivalent yield" from time to time. The tax-equivalent
yield shows the level of taxable yield needed to produce an after-tax equivalent
to the Fund's tax-free yield. This is done by increasing the Fund's yield
(calculated as above) by the amount necessary to reflect the payment of federal
income tax at a stated tax rate. For further information concerning these
figures, see "Performance Information" in the Statement of Additional
Information. The Fund may also use comparative performance information from time
to time in marketing Fund shares, including data from Lipper Analytical
Services, Inc. and/or Donoghue's Money Fund Report.
For information on each Fund's seven-day yield call the Transfer Agent at
1-800-282-4404.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value per share, except that,
upon written notice to the Company or by checking off the appropriate box in the
account application form, a shareholder may elect to receive dividends and/or
distributions in cash.
For the Funds, net investment income is computed and dividends declared as
of 1:00 p.m. (Eastern Time) on each day. Such dividends are payable to Fund
shareholders of record as of 12:00 p.m. (Eastern Time) on that day, if the
Company and the Custodian are open for business. This means that shareholders
whose purchase orders become effective as of 12:00 p.m. (Eastern Time) will
begin to receive the dividend on that day and shareholders whose purchase orders
become effective as of 4:00 p.m. (Eastern Time) will begin to receive the
24
<PAGE>
dividend on the following day. Dividends declared for Saturdays, Sundays and
holidays are payable to shareholders of record as of 4:00 p.m. (Eastern Time) on
the last preceding day the Company and the Custodian were open for business. Net
realized gains, if any, after reduction for any available tax loss carry forward
may be distributed annually.
It is an objective of management to maintain the price per share of each
Fund as computed for the purpose of sales and redemptions at exactly $1.00. In
the event the Directors determine that a deviation from the $1.00 per share
price may exist which may result in a material dilution or other unfair results
to investors or existing shareholders, they will take corrective action they
regard as necessary and appropriate, including selling instruments from the Fund
prior to maturity to realize gains or losses, shortening average portfolio
maturity, withholding dividends, making a special capital distribution, or
redeeming of shares in kind.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of a Fund or its shareholders. Accordingly,
shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
Each Fund is treated as a separate entity for federal income tax purposes,
and thus the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), generally will be applied to each Fund separately, rather than to the
Company as a whole. Accordingly, net long-term and short-term capital gains, net
income and operating expenses will be determined separately for each Fund.
Each Fund has elected and qualified, and intends to continue to qualify, for
the special tax treatment afforded "regulated investment companies" ("RICs")
under Subchapter M of the Code so that it will be relieved of federal income tax
on that part of its net investment income and net capital gain (the excess of
net long-term capital gain over net short-term capital loss) which is
distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by the Money Market Fund and Government Obligations Money Market
Fund from their respective net investment income will be taxable to the
shareholders of such Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Such dividends paid by
a Fund generally will not qualify for the dividends-received deduction to
corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. Each Fund will make
annual reports to shareholders of the federal income tax status of all
distributions. See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gain dividends).
The Tax-Free Money Market Fund intends to qualify to pay "exempt-interest
dividends" by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consist of securities the interest on which is exempt from federal income tax.
If this requirement and certain other requirements are satisfied, the Fund's
exempt-interest dividends will be exempt from regular federal income tax.
Investors in this Fund should note, however, that in certain circumstances such
amounts, while exempt from regular federal income tax, are subject to
alternative minimum tax. Furthermore, exempt-interest dividends are included in
determining what portion, if any, of a person's social security and railroad
retirement benefits will be includable in gross income subject to federal income
tax. This Fund may not be an appropriate
25
<PAGE>
investment for persons who are "substantial users" of facilities financed by
industrial development or private activity bonds. See the Statement of
Additional Information for a description of the application of the alternative
minimum tax and certain other collateral tax consequences.
Current federal income tax law limits the types and volume of bonds
qualifying for the federal income tax exemption of interest, which may affect
the ability of the Tax-Free Money Market Fund to purchase sufficient amounts of
tax-exempt securities to qualify to pay exempt-interest dividends. Investors
should note that interest on indebtedness incurred or continued by shareholders
to purchase or carry shares of the Tax-Free Money Market Fund will not be
deductible for federal income tax purposes.
The Tax-Free Money Market Fund will determine annually the percentages of
its net investment income which are exempt from the regular federal income tax
and will apply such percentages uniformly to all dividends declared from net
investment income during that year. These percentages may differ significantly
from the actual percentages for any particular day.
Shareholders may also be subject to state and local taxes on distributions
from the Funds. Shareholders are advised to consult their own tax advisers with
respect to tax consequences to them of an investment in the Company.
Dividends and other distributions declared by a Fund in October, November or
December that are payable as of a record date in such month and are paid at any
time during January of the following year are treated as having been paid by the
Fund and received by the shareholders on December 31st of the year in which they
are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. Any loss realized on a taxable disposition of shares held for
six months or less will be disallowed to the extent of any exempt-interest
dividends received with respect to such shares.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or, (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%. A special 28% tax rate may apply to
a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended June 30, 1998.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN A FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998 the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of the Funds, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the
26
<PAGE>
Directors if they choose to do so. Under Maryland law, the Company is not
required to hold an annual meeting of its shareholders unless required to do so
under the 1940 Act. Any person or organization owning 25% or more of the
outstanding shares of a Fund may be presumed to "control" (as that term is
defined in the 1940 Act) such Fund. As September 3, 1998, PFPC, Inc., 400
Bellevue Parkway, Wilmington, DE 19809, was presumed to "control" the Money
Market Fund and Government Obligations Money Market Fund based solely on its
ownership of 25% or more of the outstanding voting shares of such Funds.
REPORTS TO SHAREHOLDERS
The Company and/or its agents will send to shareholders of the Company
annual and semi-annual reports; the financial statements appearing in annual
reports are audited by independent accountants. Shareholder inquiries for Prime
Resource Accounts should be directed to the Sub-Transfer Agent, PFPC, Inc., P.O.
Box 8950, Delaware 19899. Shareholder inquiries for all other accounts should be
directed to the Transfer Agent, Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, Missouri 64141-9256.
CUSTODIAN
PNC Bank, N.A. acts as custodian for each of the Money Market Funds. For
more information on the Company's custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING, TRANSFER AGENT AND SUB-TRANSFER AGENT
PFPC, Inc., an indirect wholly-owned subsidiary of PNC Financial Corp., a
multi-bank holding company, serves as sub-transfer agent for Prime Resource
Account shareholders. PFPC's address is 400 Bellevue Parkway, Wilmington,
Delaware 19809. Investor Services, an affiliate of the Adviser, Sub-Adviser and
Distributor, serves as dividend disbursing and transfer agent for all other
shareholders. Investor Services' address is P.O. Box 418256, Kansas City,
Missouri 64141.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Street, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
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MORGAN STANLEY
MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND
GOVERNMENT OBLIGATIONS
MONEY MARKET FUND
PORTFOLIOS OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN EUROPEAN EQUITY FUND
A PORTFOLIO OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of the Van Kampen European Equity Fund (the "Fund"). The
Fund's investment objective is to seek long-term capital appreciation. The Fund
seeks to achieve its investment objective by investing, under normal market
conditions, primarily in equity securities of European issuers. There can be no
assurance that the Fund's investment objective will be achieved.
The Fund is designed to make available to retail investors the expertise of
Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator"), and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser ("MSAM," or the "Sub-
Adviser") to the Fund and Van Kampen Funds Inc. as the Fund's distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers additional
portfolios which are described in other prospectuses. The Statement of
Additional Information and the prospectuses pertaining to the other portfolios
of the Company are available upon request and without charge by writing or
calling the Company at the address and telephone number set forth above. The
Statement of Additional Information and other materials regarding the Company
have been filed with the Securities and Exchange Commission and are available at
the Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION OF ITS AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 4
Investment Objective and Policies.......................................................................... 7
Additional Investment Information.......................................................................... 8
Investment Limitations..................................................................................... 14
Management of the Company.................................................................................. 14
Purchase of Shares......................................................................................... 17
Shareholder Services....................................................................................... 24
Redemption of Shares....................................................................................... 27
Valuation of Shares........................................................................................ 29
Portfolio Transactions..................................................................................... 29
Performance Information.................................................................................... 30
Dividends and Distributions................................................................................ 31
Taxes...................................................................................................... 31
General Information........................................................................................ 32
</TABLE>
NO DEALER, SALES REPRESENTATIVE 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 MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR 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 TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
2
<PAGE>
PROSPECTUS SUMMARY
THE FUND
Van Kampen European Equity Fund (the "Fund") is a separate investment
portfolio of the Van Kampen Series Fund, Inc., an open-end management investment
company.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek long-term capital appreciation.
There can be no assurance the Fund's investment objective will be achieved.
INVESTMENT PRACTICES
The Fund seeks to achieve its investment objective by investing, under
normal market conditions, primarily in equity securities of European issuers.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven.
RISK FACTORS
The investment policies of the Fund entail certain risks and considerations
of which an investor should be aware. The Fund invests primarily in equity
securities, which are subject to market risks that may cause their prices to
fluctuate over time. The Fund will invest in securities of foreign issuers.
Securities of foreign issuers are subject to certain risks not typically
associated with domestic securities. The Fund invests in securities of issuers
located in developing countries and emerging markets. These securities may
impose greater liquidity risks and other risks not typically associated with
investing in more established markets. See "Additional Investment Information --
Foreign Investment" for more information. The Fund may invest in repurchase
agreements, borrow money, lend its portfolio securities, and purchase securities
on a when-issued or delayed delivery basis. The Fund may invest in forward
foreign currency exchange contracts and foreign currency exchange futures and
options to hedge the currency risks associated with investment in non-U.S.
dollar denominated securities. The Fund may invest in derivative instruments
which include options, futures and options on futures and swaps. The Fund may
engage in short selling. The Fund may invest, to a limited extent, in
non-publicly traded securities. Each of these investment strategies involves
specific risks which are described under "Investment Objective and Policies" and
"Additional Investment Information" herein and under "Investment Objectives and
Policies" in the Statement of Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Fund are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Fund are offered at net asset value per share plus a maximum initial sales
charge of 5.75% which initial sales charge may be reduced on certain large
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Fund are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of the
Fund, except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of shares, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of the Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
INVESTMENT ADVISERS
Van Kampen Advisory Corp. is the Fund's investment adviser (the "Adviser").
Morgan Stanley Asset Management Inc. provides sub-advisory services to the
Adviser (the "Sub-Adviser").
DISTRIBUTOR
Van Kampen Funds Inc. (the "Distributor") distributes the Fund's shares.
3
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Fund may incur:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price)............................................... 5.75%(1) None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price)................................. None None None
Maximum Deferred Sales Charge (as a percentage of the lesser of
original purchase price or redemption proceeds)............... None(2) Year 1--5.00% Year 1--1.00%
Year 2--4.00% 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 fees................................................... None None None
</TABLE>
- ------------------------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of 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."
4
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS A CLASS B CLASS C
- -------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Investment Advisory Fee (1)....................... 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees (2)........... 0.25% 1.00% 1.00%
Other Expenses (1)................................ 0.45% 0.45% 0.45%
Total Operating Expenses (1)...................... 1.70% 2.45% 2.45%
</TABLE>
- ------------------------------
(1) During the Fund's current fiscal year, the Adviser has agreed to waive a
portion of its advisory fees and/or to reimburse a portion of expenses of
the Fund, if necessary, if the Fund's total annual operating expenses, as a
percentage of average daily net assets, would exceed the percentages set
forth in the table above. The following sets forth the Fund's (i) investment
advisory fees absent advisory fee waivers, (ii) expected other expenses
absent expense reimbursements and (iii) expected total operating expenses
absent fee waivers and/or expense reimbursements. After the Fund's current
fiscal year, the Adviser in its discretion may terminate voluntary fee
waivers and/or reimbursements at any time. Absent the waiver of fees or
reimbursement of expenses, the amounts in the examples below would be
greater.
<TABLE>
<CAPTION>
OTHER
INVESTMENT EXPENSES TOTAL
ADVISORY FEES ------- OPERATING EXPENSES
------------- ALL ------------------------------------
ALL CLASSES CLASSES CLASS A CLASS B CLASS C
------------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
European Equity Fund............... 1.00% 0.65% 1.90% 2.65% 2.65%
</TABLE>
For further information on Fund expenses, see "Management of the Company."
(2) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The expenses and fees for the Fund are based on the advisory
agreements, 12b-1 plans and estimates of other expenses because the Fund has not
commenced investment operations as of the date of this Prospectus.
5
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions and redemption at the end of each time period as
indicated, in (i) Class A shares of the Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of the Fund, which have a CDSC, but no
initial sales charge, and (iii) Class C shares of the Fund which have a CDSC,
but no initial sales charge.
<TABLE>
<CAPTION>
EUROPEAN
EQUITY
FUND
---------
<S> <C>
Class A shares
1 Year........................................................... $ 74(1)
3 Years.......................................................... 108
Class B shares
(Assuming complete redemption at end of period)
1 Year........................................................... $ 75
3 Years.......................................................... 106
(Assuming no redemption)
1 Year........................................................... $ 25
3 Years.......................................................... 76
Class C shares
(Assuming complete redemption immediately prior to the end of the
period)
1 Year........................................................... $ 35
3 Years.......................................................... 76
Class C shares
(Assuming no redemption)
1 Year........................................................... $ 25
3 Years.......................................................... 76
</TABLE>
- ------------------------------
(1) The example reflects Class A shares sold at the maximum 5.75% initial sales
charge. Certain large purchases may be subject to a reduced initial sales
charge. Purchases of Class A shares of the Fund which, when combined with
the value of the purchaser's existing investments in Class A shares of the
Participating Funds, aggregate to $1 million or more are not subject to an
initial sales charge but a CDSC of 1.00% will be imposed on such shares that
are redeemed within one year following such purchase.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation. The Fund's investment objective is a fundamental policy which may
not be changed by the Fund without the approval of a majority of the Fund's
outstanding voting securities. There can be no assurance that the Fund will
attain its investment objective. The investment policies described below are not
fundamental policies and may be changed without shareholder approval. For more
information about certain investment practices, see "Additional Investment
Information" below and "Investment Objectives and Policies" in the Statement of
Additional Information.
The Fund seeks to achieve its investment objective by investing, under
normal market conditions, primarily in equity securities of European issuers,
including those located in Germany, France, Switzerland, Belgium, Italy,
Finland, Sweden, Denmark, Norway and the United Kingdom. Investments may also be
made in the equity securities of issuers located in the smaller and emerging
markets of Europe. With respect to the Fund, equity securities include common
and preferred stocks, convertible securities, and rights and warrants to
purchase common stocks. Under normal circumstances, at least 65% of the total
assets of the Fund will be invested in equity securities of European issuers.
In recent years there have been two key issues influencing the investment
environment and economic conditions of Europe: the creation of the single market
and the emergence of Eastern European economies. Both of these factors have
helped European companies by opening up new markets for growth.
In connection with efforts to create a single market, eleven of the fifteen
member countries of the European Union are scheduled to establish fixed
conversion rates between their existing sovereign currencies and a new common
currency, the euro, effective January 1, 1999. The introduction of the euro is
expected to reshape financial markets, banking systems and monetary policies in
Europe and other parts of the world. The participating countries will issue
sovereign debt exclusively in the euro and will redenominate outstanding
sovereign debt. Financial transactions and market information, including share
quotations and company accounts, in participating countries will be denominated
in euros. Monetary policy for participating countries will be uniformly managed
by a new central bank, the European Central Bank (ECB).
The transition to the euro may change the economic environment and behavior
of investors, particularly in European markets. For example, the process of
implementing the euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax consequences. The transition
to the euro is likely to have a significant impact on fiscal and monetary policy
in the participating countries and may produce unpredictable effects on trade
and commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.
Governments across Europe have also initiated major privatization programs
shifting a greater share of economic activity into the more efficient private
sector. Private companies have sought quotation, following the need to compete
in the capital markets, as much as in the market place for their products and
services. Those companies already quoted have begun to appreciate the value of
their being listed. To achieve a high rating on their equity, companies need to
produce transparent accounts, communicate effectively with their shareholders
and manage their businesses and assets to their shareholders' advantage. The
restructuring, management incentives and rationalization of companies has lead
to lower wage structures and greater flexibility. This has enabled European
companies to match the competitive cost environment of developing economies.
Demand for equity will grow hand in hand with supply; driven by pension fund
reform, growth in life insurance, shifts in European investing from fixed income
to equities and the emergence of European mutual funds. All of these factors
together will improve the quality of the markets in which European equities are
traded.
The Adviser's approach in selecting investments for the Fund is oriented to
bottom-up, individual stock selection and is value driven. In selecting stocks
for the Fund, the Adviser initially identifies those stocks which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues, and then evaluates the future value of such stocks by running the
results of an in-depth study of the issuer through a
7
<PAGE>
dividend discount model. The Adviser utilizes the research of a number of
sources, including its affiliate in Geneva, Morgan Stanley Capital
International, in identifying attractive securities, and applies a number of
proprietary screening criteria to identify those securities it believes to be
undervalued. The Adviser makes company visits and reviews the quality of
management. Fund holdings are regularly reviewed and subjected to fundamental
analysis to determine whether they continue to conform to the Adviser's value
criteria. Securities which no longer conform to such value criteria are sold.
While the Fund is not subject to any specific geographic diversification
requirements, it currently intends to diversify investments among countries.
Investments will be made primarily in equity securities of companies domiciled
in developed countries, but may be made in the securities of companies in
developing countries as well. Securities in emerging markets may not be as
liquid as those in developed markets and pose greater risks. Although the Fund
intends to invest primarily in securities listed on stock exchanges, it will
also invest in securities traded in over-the-counter markets. Unlisted
securities may not be as liquid as listed securities and pose greater risks on
the Fund. The Fund will not, under normal circumstances, invest in the equity
securities of U.S. issuers.
The Fund may, for temporary defensive purposes, invest a portion or all of
its assets in domestic, Eurodollar and foreign short-term money market
instruments in response to adverse market conditions.
Any remaining assets of the Fund not invested as described above may be
invested in certain securities or obligations, including derivative securities,
as set forth in "Additional Investment Information" below.
YEAR 2000 RISKS. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem". The
Adviser is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, there can be no assurance that these
steps will be sufficient to avoid any adverse impact upon the Fund. In addition,
the Year 2000 Problem may adversely affect the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net assets value of
the Fund.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
The Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Fund may invest in equity-linked securities, which are securities that
are convertible into, or the value of which is based upon the value of, equity
securities upon certain terms and conditions. The amount received by an investor
at maturity of such securities is not fixed but is based on the price of the
underlying common stock. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. In addition, it is not possible to
predict how equity-linked securities will trade in the secondary market which is
fairly developed and liquid. The market for such securities may be shallow,
however, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying
8
<PAGE>
equity securities while allowing some participation in the capital appreciation
of the underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when the Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value of securities held by the Fund against exchange rate fluctuations. While
such forward contracts may limit losses to the Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
FOREIGN INVESTMENT
The Fund will invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Fund by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environments than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and the Fund may temporarily hold uninvested reserves in
bank deposits in foreign currencies. Therefore, the value of a Fund's assets
measured in U.S. Dollars may be affected favorably or unfavorably by changes in
currency exchange rates and exchange control regulations. The Fund will also
incur certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities of another open-end or closed-end
investment company by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act").
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. The Fund may invest in these investment funds, including those
advised by MSAM, as well as other investment companies, subject to applicable
provisions of the 1940 Act and other applicable laws.
9
<PAGE>
If the Fund invests in such investment companies, the Fund's shareholders
will bear not only their proportionate share of the expenses of the Fund
(including operating expenses and the fees of the Adviser), but also will
indirectly bear similar expenses of the underlying investment funds.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing its
net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Fund will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of a Fund's total assets. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
MONEY MARKET INSTRUMENTS
The Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Fund include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
commercial paper including bank obligations, certificates of deposit (including
Eurodollar certificates of deposit) and repurchase agreements.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities. Further,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration. The Fund
may not invest more than 15% of its net assets in illiquid securities which
generally includes securities that are restricted from sale to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under that 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, availability
of reliable pricing information, the number of dealers making quotes or making a
market in the security and the number of potential purchasers in the market for
the security. To the extent that qualified institutional buyers become
uninterested in buying 144A Securities, then such securities in the Fund's
portfolio could increase the Fund's level of illiquidity. Notwithstanding the
above, the Fund may not invest more than 10% of its total assets in securities
subject to legal or contractual restrictions on resale.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Fund's Board of Directors. In a repurchase agreement, the Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term of these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Fund to the seller. The Fund always receives securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, the Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon sale of the collateral may be delayed or limited.
Repurchase agreements with durations (or maturities) over seven days in length
are considered illiquid securities.
10
<PAGE>
SHORT SALES
The Fund may from time to time sell securities short without limitation,
although it does not intend to sell securities short on a regular basis. A short
sale is a transaction in which the Fund sells securities it either owns or has
the right to acquire at no added cost (i.e. "against-the-box") or it does not
own (but has borrowed) in anticipation of a decline in the market price of the
securities. When the Fund makes a short sale of borrowed securities, the
proceeds it receives from the sale will be held on behalf of a broker until the
Fund replaces the borrowed securities. To deliver the securities to the buyer,
the Fund will need to arrange through a broker to borrow the securities and, in
so doing, the Fund will become obligated to replace the securities borrowed at
their market price at the time of replacement, whatever that price may be. The
Fund may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or liquid assets. In addition, the Fund will place in a
segregated account with an appropriate custodian an amount of cash or liquid
assets equal to the difference, if any, between (1) the market value of the
securities sold at the time they were sold short and (2) any cash or liquid
securities deposited as collateral with the broker in connection with the short
sale (not including the proceeds of the short sale). Short sales by the Fund
involve certain risks and special considerations. Possible losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from purchases
can equal only the total amount invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
In such transactions, instruments are bought with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price at the time of the transaction. The payment obligation and the
interest rates that will be received are each fixed at the time the Fund enters
into the commitment, and no interest accrues to the Fund until settlement. Thus,
it is possible that the market value at the time of settlement could be higher
or lower than the purchase price if the general level of interest rates has
changed. It is a current policy of the Fund not to enter into when-issued
commitments or delayed delivery securities transactions exceeding, in the
aggregate, 15% of the Fund's net assets other than the obligations created by
these commitments.
DERIVATIVE INSTRUMENTS
The Fund is permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Fund. The Fund will limit its use of the foregoing derivative instruments
for non-hedging purposes to 33 1/3% of its total assets measured by the
aggregate notional amount of outstanding derivative instruments. In addition,
the Fund will not enter into futures contracts and options on futures contracts
to the extent that the notional value of its outstanding obligations to purchase
securities under such contracts would exceed 20% of its total assets. The Fund's
investments in forward foreign currency contracts and derivatives used for
hedging purposes are not subject to the limits described above.
The Fund may use derivative instruments under a number of different
circumstances to further its investment objectives. The Fund may use derivatives
when doing so provides more liquidity than the direct purchase of the securities
underlying such derivatives. For example, the Fund may purchase derivatives to
quickly gain exposure to a market in response to changes in the Fund's
investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. The
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by the
Fund for hedging purposes and in other circumstances when the Fund's Adviser
believes it advantageous to do so consistent with the Fund's investment
objective. The Fund will not, however, use derivatives in a manner that creates
leverage, except to the extent that the use of leverage is expressly permitted
by the Fund's investment policies, and then only in a manner consistent with
such policies.
11
<PAGE>
Some of the derivative instruments in which the Fund may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS The Fund may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS The Fund may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Fund may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Fund
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser and the extent to which those strategies are
used, may depend on the development of such markets.
The Fund may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Fund
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
its exposure to a particular currency.
The Fund may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Fund may engage in such transactions to hedge its
holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Fund may
engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, the Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of the Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by the Fund and the prices of futures and
options relating to investments purchased or sold by the Fund, and (ii) possible
lack of a liquid secondary market for a futures contract and the resulting
inability to close a futures position. The risk that the Fund will be unable to
close out a futures position or options contract will be minimized by only
entering into futures contracts or options transactions for which there appears
to be a liquid
12
<PAGE>
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
OPTIONS TRANSACTIONS The Fund may seek to increase its returns or may hedge
its portfolio investments through options transactions with respect to (i)
securities, instruments, indices or baskets thereof in which the Fund may invest
and (ii) foreign currencies. Purchasing a put option gives the Fund the right to
sell a specified security, currency or basket of securities or currencies at the
exercise price until the expiration of the option. Purchasing a call option
gives the Fund the right to purchase a specified security, currency or basket of
securities or currencies at the exercise price until the expiration of the
option.
The Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. The Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, the
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The Fund
may only write options that are "covered." A covered call option means that so
long as the Fund is obligated as the writer of the option, it will earmark or
segregate sufficient liquid assets to cover its obligations under the option or
own (i) the underlying security or instrument subject to the option, (ii)
securities or instruments convertible or exchangeable without the payment of any
consideration into the security or instrument subject to the option, or (iii) a
call option on the same underlying security with a strike price no higher than
the price at which the underlying instrument was sold pursuant to a short option
position.
By writing (or selling) a put option, the Fund incurs an obligation to buy
the security or instrument underlying the option from the purchaser of the put
at the option's exercise price at any time during the option period, at the
purchaser's election. The Fund may also write options that may be exercisable by
the purchaser only on a specific date. When the Fund that has written a put
option, it will earmark or segregate sufficient liquid assets to cover its
obligations under the option or will own a put option on the same underlying
security with an equal or higher strike price.
The Fund may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by the
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED NOTES Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Fund may use structured notes to tailor its
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest rates, prices and total return on interest rate indices, fixed income
indices, stock indices and commodity indices (as well as amounts derived from
arithmetic operations on these indices). For example, the Fund may agree to swap
the return generated by a fixed income index for the return generated by a
second fixed income index. The
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<PAGE>
currency swaps in which the Fund may enter will generally involve an agreement
to pay interest streams in one currency based on a specified index in exchange
for receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
The Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two returns. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. The Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that the Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, the
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of 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 market
values, interest rates and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique were not used.
INVESTMENT LIMITATIONS
The Fund is a diversified investment company under the 1940 Act, and
therefore, with respect to 75% of its total assets: (a) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities and (b)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. The Fund also intends to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company. The Fund also
operates under certain investment restrictions that are deemed fundamental
policies and may be changed only with the approval of the holders of a majority
of the Fund's outstanding shares. See "Investment Limitations" in the Statement
of Additional Information. In addition, the Fund operates under certain
non-fundamental investment limitations as described in the Statement of
Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Fund. The
Adviser provides investment advice and portfolio management services pursuant to
an advisory agreement (the "Advisory Agreement") and subject to the supervision
of the Company's Board of Directors, makes the Fund's investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Fund's investments. The Advisory Agreement also provides that the Adviser may
appoint sub-advisers to perform these portfolio management responsibilities. See
"Investment Sub-Adviser" below. The Adviser is entitled to receive an aggregate
advisory fee computed daily and paid monthly at the annual rate of 1.00% applied
to the Fund's average daily net assets.
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<PAGE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Fund for all or
a portion of the Fund's other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen
Investments. The Adviser's principal office is located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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; asset management;
trading of futures, option, foreign exchange commodities and swaps (including
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending; and credit services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Fund. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Fund's investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Fund's investments.
The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of the Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If the
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had, together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion.
PORTFOLIO MANAGER. ROBERT SARGENT has primary portfolio management
responsibility for the Fund's assets. Mr. Sargent is a Managing Director of the
Sub-Adviser and Morgan Stanley. He joined Morgan Stanley International in May,
1986, and transferred to the Sub-Adviser in June, 1987. As the Fund manager with
primary responsibility for continental European stock selection and portfolio
management, Mr. Sargent is closely involved with the Sub-Adviser's fundamental
research effort and company visiting program. He is a graduate of York
University, Toronto, Canada.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the
15
<PAGE>
preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Adviser through its
agents will provide the Company dividend disbursing and transfer agent services.
For its services under the Administration Agreement, the Company pays the
Adviser a monthly fee which on an annual basis equals 0.25% of the average daily
net assets of the Fund.
Under a sub-agreement between the Adviser and The Chase Manhattan Bank
("Chase"), Chase Global Funds Services Company ("CGFSC"), a corporate affiliate
of Chase, provides certain administrative services to the Company. The
Administrator supervises and monitors such administrative services provided by
CGFSC. The services provided under the administration agreement are subject to
the supervision of the Board of Directors of the Company. The Board of Directors
of the Company has approved the provision of services described above pursuant
to the sub-administration agreement as being in the best interests of the
Company. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913. For additional information on the administration agreement, see
"Management of the Company" in the Statement of Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
review the actions of the Adviser, Sub-Adviser, Administrator and Distributor.
The officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Fund. The Company may in the future offer one or more classes of
shares for the Fund that may have sales charges or other distribution charges or
a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Fund
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from the Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of the Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to the
Class C shares, the Distributor expects to reallocate substantially all of its
fee to such Participating Dealers. The Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee
and the Distributor is free to make additional payments out of its own assets to
promote the sale of Fund shares. Class A shares, Class B shares and Class C
shares are subject to a service fee at an annual rate of 0.25% on an annualized
basis of the average daily net assets of such class of shares of the Fund. In
addition to such payments, the Adviser or its affiliates may pay certain
expenses associated with activities which might be construed to be financing the
sale of the Fund's shares, including payments to third parties that provide
assistance in the distribution effort (in addition to selling shares and
providing shareholder services). Any payments by the Adviser or its affiliates
will be made directly from their assets and will not be made from the assets of
the Company or by the assessment of a charge on shares.
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Fund will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect
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<PAGE>
financial interest in the operation of a Plan or in any agreements related
thereto ("12b-1 Directors"). Each Plan may be terminated at any time by a vote
of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services (defined below). The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company 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 are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating 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. The $500
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly-owned subsidiary of Van
Kampen. When purchasing shares of the Company, 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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable 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 per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by Participating Dealers after the close of the New York Stock Exchange
(the "NYSE") are priced based on the net asset value per share calculated after
the next day's close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time.
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<PAGE>
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, 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 fees) resulting
from such sales arrangement, (ii) generally, each class has exclusive voting
rights with respect to approvals of the Rule 12b-1 distribution plan to which
its distribution fee or service fee is paid, (iii) Class B shares are subject to
a conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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 higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company'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.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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 "Fund Expenses" 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 shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, 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 most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
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. Investors should understand that the purpose and function of the CDSC
and ongoing distribution fee with respect to Class B shares and Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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
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<PAGE>
exceeding the total applicable sales charges on the sales generated by the
Participating 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 Company. 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 Company. 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 business nature. In some instances additional compensation or
promotional incentives may be offered to Participating Dealers that have sold or
may sell significant amounts of shares during specified periods of time. 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. All of the foregoing payments are made by the Distributor
out of its own assets. These programs will not change the price an investor will
pay for shares or the amount that the Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET AMOUNT (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE INVESTED PRICE)
- --------------------------------------------------------- --------------- ------------------- -----------------------
<S> <C> <C> <C>
Less than $50,000........................................ 5.75 6.10 5.00
$50,000 but less than $100,000........................... 4.75 4.99 4.00
$100,000 but less than $250,000.......................... 3.75 3.90 3.00
$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 initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries 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, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act. The
Distributor may also pay financial institutions (which may include banks) and
other industry professionals that provide services to facilitate transactions in
shares of the Company for their clients a transaction fee up to the level of the
reallowance allowable to Participating Dealers described herein. Such financial
institutions, other industry professionals and Participating 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 Company. 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.
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<PAGE>
Investors or their Participating Dealers must notify the Company 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 Participating 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
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
and distributed by the Distributor as determined from time to time by the
Company's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the preceding sales
charge tables applies to the total dollar amount being invested by any person in
shares of the Fund or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
tables 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 investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding tables 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 charges 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 form 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company 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 Company 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 Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in the Fund during each distribution period by all investors who choose to
invest in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
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<PAGE>
As further requirements for obtaining these special benefits, the Company
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 Company
will send account activity statements to such participants on a monthly basis
only, even if their investments are made more frequently. The Company 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 per share without an initial sales charge, 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 of funds advised by the Adviser or Van
Kampen Asset Management Inc. and such persons' families and their beneficial
accounts.
(2) Current or retired trustees, 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) Trustees, 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 investments 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 Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans which invest in multiple fund families through national wirehouse
alliance programs 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 alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a
retirement plan or held in a tax-advantaged retirement account who purchase
shares of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary 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 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. Section 403(b) and similar accounts for which Van
Kampen Trust Company ("Van Kampen Trust") 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. A
commission will be paid to dealers who initiate and are responsible for such
purchases within a rolling twelve month period as follows: 1.00% on sales up
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of the Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of the Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria
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<PAGE>
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
participant's account in connection with this privilege will be subject to a
contingent deferred sales charge of one percent 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 million and
0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Fund may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF THE
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT WAS MADE SUBJECT TO CHARGE
- ---------------------------------------------------------------------------- -------------------
<S> <C>
First....................................................................... 5.00%
Second...................................................................... 4.00%
Third....................................................................... 3.00%
Fourth...................................................................... 2.50%
Fifth....................................................................... 1.50%
Thereafter.................................................................. None*
</TABLE>
- ------------------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
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<PAGE>
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan, as
described under "Management of the Company -- Distributor" above. Additionally,
the Distributor may pay additional promotional incentives, in the form of cash
or other compensation, to authorized dealers that sell Class B shares of the
Fund. The combination of the CDSC and the distribution fee facilitates the
ability of the Company to sell the Class B shares without a sales charge being
deducted at the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Fund may be purchased at the net asset value per share
and such shares are subject to a CDSC at the rate of 1.00% of the lesser of the
current market value of the shares redeemed or the total cost of such shares for
shares that are redeemed within one year of purchase. The Distributor will
generally make payments to the Participating Dealers that handle the purchases
of such shares at the rate of up to 1.00% of the purchase price of such shares
at the time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described herein under "Redemption of Shares." A
shareholder, or their representative, must notify the Transfer Agent prior to
the time of redemption if such circumstances exist and the shareholder is
eligible for this waiver. The shareholder is responsible for providing
sufficient documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Fund or
classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Fund without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of the Fund at net asset value per share with
no initial sales charge. A Class C shareholder who has redeemed shares of a
Participating 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. The reinstatement privilege as to any specific Class A,
Class B or Class C shares must be exercised within 180 days of the redemption.
The Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written
23
<PAGE>
request must state that the reinstatement is made pursuant to this reinstatement
privilege. If a loss is realized on the redemption of Class A shares, the
reinstatement may be subject to the "wash sale" rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinstatement privilege may be terminated or
modified at any time. Reinstatement at net asset value per share is also offered
to participants in those eligible retirement plans held or administered by Van
Kampen Trust for repayment of principal (and interest) on their borrowings. See
the Statement of Additional Information for further discussion of waiver
provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Van Kampen Investor Services Inc. ("Investor Services").
Investor Services acts as transfer agent for the Company and performs
bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from Investor Services showing any reinvestments of dividends and
capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder. Both accounts must also be of the same type, either
non-retirement or
24
<PAGE>
retirement. Any two non-retirement accounts can be used. 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 the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the portfolio into which distributions would be invested. Distributions are
invested into the selected portfolio at its net asset value as of the payable
date of the distribution only if shares of such selected portfolio have been
registered for sale in the investor's state and are currently available for
sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust 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.
EXCHANGE PRIVILEGE. Shares of the Fund or any Participating Fund may be
exchanged with shares of the same class of another Participating Fund based on
the net asset value per share of each fund on the date of exchange, subject to
certain limitations. Before effecting an exchange, shareholders in the Company
should obtain and read a current prospectus of the Participating Funds into
which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER
PARTICIPATING FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE
CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund 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.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take place at the relative net asset value
per share of the shares next determined after receipt of such request with
adjustment for any additional sales charge. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to
25
<PAGE>
reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment. If an
account has multiple owners, Investor Services may rely on the instructions of
any one owner.
SYSTEMATIC 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.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company 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 purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
www.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of
26
<PAGE>
instructions communicated through the internet. If reasonable procedures are
employed, neither VK nor the Fund will be liable for following instructions
through the internet which it reasonably believes to be genuine. If an account
has multiple owners, Investor Services may rely on the instructions of any one
owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, any applicable CDSC) at any time by sending a
written request in proper form directly to the Company c/o Van Kampen Investor
Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through a Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would 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. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received, less any applicable CDSC, by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 287-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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, Investor Services may rely on the instructions of any one
owner.
27
<PAGE>
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C
shares 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 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 death or the initial determination of disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK"), and the Company 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
28
<PAGE>
are employed, neither VK nor the Company will be liable for following
instructions which it reasonably believes to be genuine. VK and the Company may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of shares of the
Fund. The net asset value per share of each class of shares of the Fund is
determined by dividing the total fair market value of the investments and other
assets attributable to such class of shares, less all liabilities attributable
to such class of shares, by the total number of outstanding shares of such class
of shares. Net asset value per share of the Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the closing price, or if that is
unavailable, the latest quoted sale price on the day of valuation. If there is
no such reported sale, the latest quoted bid price will be used. Debt securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost, if it approximates market value. In the event that amortized cost does not
approximate market value, market prices as determined above will be used. The
"amortized cost" method of valuation does not take into account unrealized gains
or losses. This method involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the Sub-Adviser select the brokers or dealers that will
execute the purchases and sales of investment securities for the Fund. The
Adviser and the Sub-Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the Fund to their clients or
who act as agents in the purchase of shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Adviser and the Sub-Adviser, or broker affiliates
of Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions,
29
<PAGE>
fees or other remuneration received by Morgan Stanley or such affiliates must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers for comparable transactions involving similar securities being
purchased or sold during a comparable period of time.
Although the objective of the Fund is not to invest for short-term trading,
the Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Fund anticipates that its annual portfolio
turnover rate will not exceed 100% under normal circumstances but market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. High portfolio turnover (i.e. 100% or more) involves
correspondingly greater transaction costs which will be borne directly by the
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Fund. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in the Fund
would have earned over a specified period of time (such as one, three, five or
ten years) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period. Total return does not
take into account any federal or state income tax consequences to shareholders
subject to tax. The Company may also include comparative performance information
in advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
PERFORMANCE OF INVESTMENT SUB-ADVISER
The Fund was modeled after a portfolio of the Morgan Stanley Institutional
Funds, Inc. ("MSIF") which is currently managed by MSAM. The MSIF Portfolio has
substantially the same investment objective, policies and strategies as the
Fund. In addition, the Adviser and the applicable Sub-Adviser intend the Fund to
be managed by the same personnel and to continue to have closely similar
investment strategies, techniques and characteristics as the corresponding MSIF
Portfolio. Past investment performance of the MSIF Portfolio, as shown in the
table below, may be relevant to your consideration of investment in the Fund.
The investment performance of the MSIF Portfolio is not necessarily indicative
of future performance of the Fund. Also, the operating expenses of the Fund will
be different from, and may be higher than, the operating expenses of the MSIF
Portfolio. The investment performance of the MSIF Portfolio is provided merely
to indicate the experience of the Sub-Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the Fund's projected operating expenses and (i) with respect
to the Class A shares, to take into account a maximum 5.75% initial sales charge
applicable to purchases of Class A shares of the Fund, (ii) with respect to
Class B shares, to take into account the applicable CDSC that is imposed if
Class B shares of the Fund are redeemed within the year of their purchase
indicated and (iii) with respect to the Class C shares, to take into account a
1.00% CDSC that is imposed if Class C shares of the Fund are redeemed within one
year of their purchase. The data set forth below under the heading "Return
Without Sales Charge" is adjusted to reflect the Fund's projected operating
expenses and not adjusted to take into account such sales charges.
30
<PAGE>
TOTAL RETURN FOR THE MSIF EUROPEAN EQUITY PORTFOLIO
(A SEPARATE MUTUAL FUND FROM THE FUND)
FOR THE PERIOD ENDED JUNE 30, 1998
(ADJUSTED TO REFLECT PROJECTED OPERATING EXPENSES AND, WHERE INDICATED, THE
SALES CHARGES OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION(1)
- ------------------------- ------ ------- ------- -------------------
<S> <C> <C> <C> <C>
Class A (of 5.75%)....... 19.73% 18.93% 20.38% 20.60%
Class B (of 5.00%)....... 21.28% 20.09% 21.32% 21.63%
Class C (of 1.00%)....... 25.28% 20.78% 21.46% 21.63%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- -------------------------
<S> <C> <C> <C> <C>
Class A.................. 27.03% 21.30% 21.81% 21.97%
Class B.................. 26.28% 20.78% 21.46% 21.63%
Class C.................. 26.28% 20.78% 21.46% 21.63%
</TABLE>
- ------------------------
(1) Commenced Operations on April 23, 1993.
The past performance of the MSIF European Equity Portfolio is no guarantee
of the future performance of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Fund, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
The Fund expects to distribute substantially all of its net investment
income in the form of annual dividends. The Fund expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of the
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase the Fund's net assets for the purpose of calculating net asset value
per share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net
asset value per share excludes the dividend or distribution (i.e., is reduced by
the per share amount of the dividend or distribution). Dividends and
distributions paid shortly after the purchase of shares by an investor, although
in effect a return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of the
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUND
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Fund or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
31
<PAGE>
The Fund is generally treated as a separate entity for federal income tax
purposes, and thus the provisions of the Code generally will be applied to the
Fund separately, rather than to the Company as a whole. Accordingly, net
long-term and short-term capital gains, net income and operating expenses will
be determined separately for the Fund.
The Fund intends to qualify for and to elect the special tax treatment
afforded "regulated investment companies" ("RICs") under Subchapter M of the
Code so that it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss, less any available capital loss carryforward)
which is distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
The Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by the Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by the
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. The Fund will make
annual reports to shareholders of the federal income tax status of all
distributions. See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gain dividends).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary income and net capital gains prior to the end of each calendar year
to continue to qualify as an RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by the Fund in October, November
or December that are payable as of a record date in such month and are paid at
any time during January of the following year are treated as having been paid by
the Fund and received by the shareholders on December 31st of the year in which
they are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Fund.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is at 35%.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998, the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
32
<PAGE>
The shares of the Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
33
<PAGE>
- --------------------------------------------------------------------------------
VAN KAMPEN
EUROPEAN EQUITY FUND
A PORTFOLIO OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN GLOBAL FRANCHISE FUND
A PORTFOLIO OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of one of the Company's portfolios, Van Kampen Global
Franchise Fund (the "Fund"). The Fund's investment objective is to seek
long-term capital appreciation. Under normal market conditions, the Fund will
invest primarily in equity securities of publicly traded issuers located in the
United States and other countries that, in the judgment of the Fund's investment
adviser, have resilient business franchises and growth potential. There can be
no assurance that the Fund's investment objective will be achieved.
The Fund is designed to make available to retail investors the expertise of
Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator"), and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser ("MSAM" or a "Sub-
Adviser") to the Fund and Van Kampen Funds Inc. as the Fund's distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above. The Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 5
Investment Objective and Policies.......................................................................... 8
Additional Investment Information.......................................................................... 9
Investment Limitations..................................................................................... 16
Management of the Company.................................................................................. 16
Purchase of Shares......................................................................................... 19
Shareholder Services....................................................................................... 26
Redemption of Shares....................................................................................... 29
Valuation of Shares........................................................................................ 31
Portfolio Transactions..................................................................................... 31
Performance Information.................................................................................... 32
Dividends and Distributions................................................................................ 32
Taxes...................................................................................................... 32
General Information........................................................................................ 33
</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>
PROSPECTUS SUMMARY
THE FUND
Van Kampen Global Franchise Fund (the "Fund") is a separate investment
portfolio of the Van Kampen Series Fund, Inc., an open-end management investment
company.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek long-term capital appreciation.
There can be no assurance that the Fund's investment objective will be achieved.
INVESTMENT PRACTICES
The Fund seeks to achieve its investment objective by investing, under
normal market conditions primarily in equity securities (i.e., common stocks,
preferred stocks, securities convertible into common stocks, rights and warrants
to subscribe for or purchase common stocks and other securities evidencing
equity interests) of publicly traded issuers located in the United States and
other countries that, in the judgment of the Adviser, have resilient business
franchises and growth potential.
The franchise focus of the Fund is based on the Adviser's belief that the
intangible assets underlying a strong business franchise (such as patents,
copyrights, brand names, licenses or distribution methods) of issuers are
difficult to create and replicate (unlike many physical assets) and that
carefully selected franchise companies can yield above average potential for
long-term capital appreciation. The Fund seeks to invest in companies identified
by the Adviser with resilient business franchises, strong cash flows, modest
capital requirements, capable managements and growth potential selected on a
global basis with a strong bias towards value. The Adviser uses a "bottom up"
strategy emphasizing individual security selection. The Adviser relies on its
research capabilities, analytical resources and judgement to identify and
monitor franchise businesses meeting the Adviser's investment program.
RISK FACTORS
The investment policies of the Fund entail certain risks and considerations
of which an investor should be aware. The Fund's Adviser believes that the
number of issuers with strong business franchises may be limited, and
accordingly, the Fund's portfolio may consist of less holdings than a fund
without such a specifically defined investment program. While the Fund's
investments generally will be diversified among a number of issuers and
industries, the Fund may invest up to 5% of its total assets in selected issuers
(and, subject to certain limitations, more than 5% of its total assets in
selected issuers) and may invest up to 25% of its assets in a single industry.
By investing more of its assets in fewer issuers or industries, the Fund will be
subject to greater risks and price volatility impacting individual issuers or
industries than a Fund which does not employ such a practice. The Fund invests
primarily in equity securities, which are subject to market risks that may cause
their prices to fluctuate over time. The Fund may invest in securities which are
convertible upon various terms and conditions into equity securities. The Fund
will invest in securities of foreign issuers which are subject to certain risks
not typically associated with domestic securities. The Fund may invest in
securities of issuers located in developing countries and traded in emerging
markets which may impose additional risks. See "Additional Investment
Information -- Foreign Investment" for more information. To limit its exposure
to, and the risks associated with investing in securities denominated in,
currencies other than U.S. dollars, the Fund may invest in forward foreign
currency exchange contracts, and may invest in foreign currency exchange futures
and options. The Fund may invest in small- to medium-sized corporations, which
are more vulnerable to financial risks and other risks than larger corporations,
and therefore may involve a higher degree of risk and price volatility than
investments in the securities of larger corporations. The Fund may invest, to a
limited extent, in non-publicly traded securities. In addition, the Fund may
invest in derivatives, which include options, futures and options on futures and
swaps and the Fund may invest in repurchase agreements, lend its portfolio
securities and purchase securities on a when-issued or delayed delivery basis
and borrow for purposes of leverage, invest in reverse repurchase agreements and
engage in short selling.
The Fund's share price and investment return fluctuate, and a shareholder's
investment when redeemed may be worth more or less than his original cost. Each
of these investment strategies involves specific risks which are described under
"Investment Objective and Policies" and "Additional Investment Information"
herein and under "Investment Objectives and Policies" in the Statement of
Additional Information.
3
<PAGE>
HOW TO INVEST
The Class A, Class B and Class C shares of the Fund are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Fund are offered at net asset value per share plus a maximum initial sales
charge of 5.75%, which initial sales charge may be reduced on certain larger
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Fund are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are also
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of the
Fund, except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of the Fund, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of the Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
INVESTMENT ADVISERS
Van Kampen Advisory Corp. is the Fund's investment adviser (the "Adviser").
Morgan Stanley Asset Management Inc. provides sub-advisory services to the
Adviser (the "Sub-Adviser").
DISTRIBUTOR
Van Kampen Funds Inc. (the "Distributor") distributes the Fund's shares.
4
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Fund may incur:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- ---------------- ----------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................. 5.75%(1) None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............................. None None None
Maximum Deferred Sales Charge (as a percentage of the lesser of
original purchase price or redemption proceeds)................. None(2) Year 1--5.00% Year 1--1.00%
Year 2--4.00% 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 fees..................................................... None None None
</TABLE>
- --------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of 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."
5
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) CLASS A CLASS B CLASS C
--------- --------- ---------
<S> <C> <C> <C>
Investment Advisory Fee(1)............................................................ 1.00% 1.00% 1.00%
12b-1 Distribution and Service Fees(2)................................................ 0.25% 1.00% 1.00%
Other Expenses(1)..................................................................... 0.54% 0.54% 0.54%
Total Operating Expenses(1)........................................................... 1.79% 2.54% 2.54%
</TABLE>
- ------------------
(1) The expenses and fees for the Fund are based on advisory agreements, 12b-1
plans and estimates of other expenses for the current fiscal year because
the Fund had not commenced investment operations as of the date of this
Prospectus. During the Fund's current fiscal year, the Adviser has agreed to
waive a portion of its advisory fees and/or to reimburse a portion of
expenses of the Fund, if necessary, so that the Fund's total annual
operating expenses, as a percentage of average daily net assets, do not
exceed 1.80%, 2.55% and 2.55% for Class A, Class B and Class C shares,
respectively. After the Fund's current fiscal year, the Adviser in its
discretion may terminate voluntary fee waivers and/or reimbursements at any
time. For further information on Fund expenses, see "Management of the
Company."
(2) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly.
6
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of each Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of each Fund, which have a CDSC, but
no initial sales charge and (iii) Class C shares of the Fund, which have a CDSC,
but no initial sales charge.
<TABLE>
<CAPTION>
FUND
-----------
<S> <C>
Class A shares
1 Year................................ $ 65(1)
3 Years............................... 101
Class B shares
(Assuming complete redemption at end of
period)
1 Year................................ 76
3 Years............................... 109
(Assuming no redemption)
1 Year................................ 26
3 Years............................... 79
Class C shares
(Assuming complete redemption immediately
prior to the end of period)
1 Year................................ 36
3 Years............................... 79
(Assuming no redemption)
1 Year................................ 26
3 Years............................... 79
</TABLE>
- --------------
(1) The example reflects Class A shares sold subject to the maximum 5.75%
initial sales charge. Certain large purchases may be subject to a reduced
initial sales charge. Purchases of Class A shares of the Fund which, when
combined with the value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation. The Fund's investment objective is a fundamental policy which may
not be changed by the Fund without the approval of a majority of the Fund's
outstanding voting securities. There can be no assurance that the Fund's
investment objective will be attained.
The Fund seeks to achieve its investment objective by investing, under
normal market conditions, primarily in equity securities (i.e., common stocks,
preferred stocks, securities convertible into common stocks, rights and warrants
to subscribe for or purchase common stocks and other securities evidencing
equity interests) of publicly traded issuers located in the United States and
other countries that, in the judgment of the Adviser, have resilient business
franchises and growth potential.
The franchise focus of the Fund is based on the Adviser's belief that the
intangible assets underlying a strong business franchise (such as patents,
copyrights, brand names, licenses or distribution methods) of issuers are
difficult to create and replicate (unlike many physical assets) and that
carefully selected franchise companies can yield above average potential for
long-term capital appreciation. The Fund seeks to invest in companies identified
by the Adviser with resilient business franchises, strong cash flows, modest
capital requirements, capable managements and growth potential selected on a
global basis with a strong bias towards value. The Adviser uses a "bottom up"
strategy emphasizing individual security selection. The Adviser relies on its
research capabilities, analytical resources and judgement to identify and
monitor franchise businesses meeting the Adviser's investment program.
The Fund's Adviser believes that the number of issuers with strong business
franchises may be limited, and accordingly, the Fund's portfolio may consist of
less holdings than a fund without such a specifically defined investment
program. While the Fund's investments generally will be diversified among a
number of issuers and industries, the Fund may invest up to 5% of its total
assets in selected issuers (and, subject to certain limitations, more than 5% of
its total assets in selected issuers) and may invest up to 25% of its assets in
a single industry. By investing more of its assets in fewer issuers or
industries, the Fund will be subject to greater risks and price volatility
impacting individual issuers or industries than a Fund which does not employ
such a practice.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in securities of issuers located in at least three different
countries. Such equity securities may be denominated in currencies other than
the U.S. dollar. The Fund is not subject to any other limitations on the portion
of its assets which may be invested in any one country or any one jurisdiction.
To the extent the Fund does invest more of its assets in a single country, the
Fund will be subject to greater risks impacting such country than a fund which
maintains broad country diversity. The Fund may invest in sponsored or
unsponsored American, global or other types of depositary receipts. The Fund may
invest in securities of issuers located in developing countries and traded in
emerging markets; such securities pose greater risks than securities of issuers
located in developed countries and traded in more established markets. To limit
its exposure to, and the risks associated with investing in securities
denominated in, currencies other than U.S. dollars, the Fund may engage in
forward foreign currency exchange transactions and may invest in foreign
currency exchange futures and options. See also "Additional Investment
Information -- Foreign Investment," "Additional Investment Information --
Forward Foreign Currency Exchange Contracts" and "Additional Investment
Information -- Depositary Receipts" below.
The Fund may invest in securities of large, medium or small capitalization
companies without limitation provided the company meets the Fund's other
investment criteria. Investments in medium or smaller companies often may
involve a higher degree of market risk and price volatility than investments in
larger companies. Although the Fund intends to invest primarily in listed
securities, the Fund may also invest in securities traded in over-the counter
markets or, to a limited extent, in non-publicly traded securities. The Fund may
also invest in derivatives, which include options, futures and options on
futures and swaps, and may borrow for investment purposes. The Fund may also
lend its portfolio securities.
Pending investment or for liquidity, the Fund may invest in cash, money
market instruments or high quality, short-term debt securities. During periods
in which the Adviser believes changes in economic or financial conditions make
it advisable, the Fund may, for temporary defensive purposes, invest a portion
or all of its assets in money market instruments or certain short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
8
<PAGE>
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
YEAR 2000 RISKS. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem". The
Adviser is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, there can be no assurance that these
steps will be sufficient to avoid any adverse impact upon the Fund. In addition,
the Year 2000 Problem may adversely affect the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
the Fund.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Fund may borrow for investment purposes amounts up to 33 1/3% of its
total assets (including amounts borrowed, less all liabilities and indebtedness
other than borrowing). The Fund is authorized to borrow an additional 5% of its
total assets as a temporary measure for extraordinary or emergency purposes.
Borrowings create leverage, which is a speculative characteristic. Although
the Fund is authorized to borrow, it will do so only when the Adviser believes
that borrowing will benefit the Fund after taking into account considerations
such as the costs of the borrowing and the likely investment returns on the
securities purchased with borrowed monies. The extent to which the Fund will
borrow will depend upon the availability of credit. No assurance can be given
that the Fund will be able to borrow on terms acceptable to the Fund and the
Adviser.
Leveraging magnifies changes in the net asset value of the shares and in the
yield on the Fund's portfolio. Borrowing will create interest expenses for the
Fund which can exceed the income from the assets obtained with the proceeds. To
the extent the income derived from securities purchased with funds obtained
through borrowing exceeds the interest and other expenses that the Fund will
have to pay in connection with such borrowing, the Fund's net income will be
greater than if the Fund did not borrow. Conversely, if the income from the
assets obtained through borrowing is not sufficient to cover the cost of
borrowing, the net income of the Fund will be less than if the Fund did not
borrow, and therefore the amount available for distribution to shareholders will
be reduced.
The Fund expects that all of its borrowings will be made on a secured basis.
The Fund's custodians will either segregate the assets securing the Fund's
borrowing for the benefit of the Fund's lenders or arrangements to segregate
such assets will be made with a suitable sub-custodian, which may be a lender.
If the assets used to secure the borrowing decrease in value, the Fund may be
required to pledge additional collateral to the lender in the form of cash or
securities to avoid liquidation of those assets. The rights of any lenders to
the Fund to receive payments of interest on and repayments of principal of
borrowings will be senior to the rights of the Fund's shareholders, and the
terms of the Fund's borrowings may contain provisions that limit certain
activities of the Fund and could result in precluding the purchase of securities
and instruments that the Fund would otherwise purchase.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
The Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Fund may invest in equity-linked securities which are securities that
are convertible into, or the value of which is based upon the value of, equity
securities upon certain terms and conditions. The amount received by an investor
at maturity of such securities is not fixed but is based on the price of the
underlying common stock. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. In addition, it is not possible to
predict how equity-linked securities will trade in the secondary market which is
9
<PAGE>
fairly developed and liquid. The market for such securities may be shallow,
however, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.
DEPOSITARY RECEIPTS
The Fund may invest in depositary receipts, including American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), European Depositary
Receipts ("EDRs") and other depositary receipts, to the extent such depositary
receipts are available. ADRs are securities, typically issued by a U.S.
financial institution (a "depositary"), that evidence ownership interests in a
security or pool of securities issued by a foreign issuer (the "underlying
issuer") and deposited with the depositary. ADRs include American Depositary
Shares and New York Shares and may be "sponsored" or "unsponsored." Sponsored
ADRs are established jointly by a depositary and the underlying issuer, whereas
unsponsored ADRs may be established by a depositary without participation by the
underlying issuer. GDRs, EDRs and other types of depositary receipts are
typically issued by foreign depositaries, although they may also be issued by
U.S. depositaries, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the Fund's investment policies,
investments in depositary receipts will be deemed to be investments in the
underlying securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when the Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value of securities held by the Fund against exchange rate fluctuations. While
such forward contracts may limit losses to the Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
FOREIGN INVESTMENT
The Fund will invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic issuers. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
Dividends and interest paid by foreign issuers may be subject to withholding and
10
<PAGE>
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Fund by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environments than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and the Fund may temporarily hold uninvested reserves in
bank deposits in foreign currencies. Therefore, the value of the Fund's assets
measured in U.S. Dollars may be affected favorably or unfavorably by changes in
currency exchange rates and exchange control regulations. The Fund will also
incur certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). To the extent the Fund invests a portion of
its assets in investment company securities, those assets will be subject to the
expenses of the purchased investment company as well as to the expenses of the
Fund itself.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing its
net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Fund will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of the Fund's total assets. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral should
the borrower of the portfolio securities fail financially.
MONEY MARKET INSTRUMENTS
The Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Fund include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
including high-grade commercial paper, repurchase agreements and bank
obligations, such as bankers' acceptances and certificates of deposit (including
Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the laws of one or more jurisdictions before
being resold, the Fund may be required to bear this expense of registration. The
Fund may not invest more than 15% of its net assets in illiquid securities which
generally includes securities that are restricted from sale to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, availability
of reliable pricing information, the number of dealers making quotes or making a
market in the security and
11
<PAGE>
the number of potential purchasers in the market for the security. To the extent
that qualified institutional buyers become uninterested in buying 144A
Securities, then such securities in the Fund's portfolio could increase the
Fund's level of illiquidity.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines of the Company's
Board of Directors. In a repurchase agreement, the Fund buys a security from a
seller that has agreed to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. The
term of these agreements is usually from overnight to one week and never exceeds
one year. A repurchase agreement may be viewed as a fully collateralized loan of
money by the Fund to the seller. The Fund always receives securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, the Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon the collateral may be delayed or limited. Repurchase
agreements with durations (or maturities) over seven days in length are
considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with brokers, dealers,
banks or other financial institutions that meet credit guidelines of the
Company's Board of Directors. In a reverse repurchase agreement, the Fund sells
a security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. It may
also be viewed as the borrowing of money by the Fund. The Fund's investment of
the proceeds of a reverse repurchase agreement is the speculative factor known
as leverage. The Fund will enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is expected to be greater than
the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. The Fund will maintain with an
appropriate custodian a separate account with a segregated portfolio of cash or
liquid assets in an amount at least equal to its purchase obligations under
these agreements (including accrued interest). If interest rates rise during a
reverse repurchase agreement, it may adversely affect the Fund's net asset
value. In the event that the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the
Fund's repurchase obligation, and the Fund's use of proceeds of the agreement
may effectively be restricted pending such decision.
SHORT SALES
The Fund may from time to time sell securities short without limitation,
although the Fund does not intend to sell securities short on a regular basis. A
short sale is a transaction in which the Fund sells securities it either owns or
has the right to acquire at no added cost (i.e., "against the box") or it does
not own (but has borrowed) in anticipation of a decline in the market price of
the securities. When the Fund makes a short sale of borrowed securities, the
proceeds it receives from the sale will be held on behalf of a broker until the
Fund replaces the borrowed securities. To deliver the securities to the buyer,
the Fund will need to arrange through a broker to borrow the securities and, in
doing so, the Fund will become obligated to replace the securities borrowed at
their market price at the time of replacement, whatever that price may be. The
Fund may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or liquid assets. In addition, the Fund will place in a
segregated account with an appropriate custodian an amount of cash or liquid
assets equal to the difference, if any, between (1) the market value of the
securities sold, and (2) any cash or liquid securities deposited as collateral
with the broker in connection with the short sale (not including the proceeds of
the short sale). Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
In such transactions, instruments are bought with payment and delivery taking
place in the future in order to secure what is
12
<PAGE>
considered to be an advantageous yield or price at the time of the transaction.
The payment obligation and the interest rates that will be received are each
fixed at the time the Fund enters into the commitment, and no interest accrues
to the Fund until settlement. Thus, it is possible that the market value at the
time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. It is the current policy of the
Fund not to enter into when-issued commitments or delayed delivery securities
exceeding, in the aggregate, 15% of the Fund's net assets other than obligations
created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Fund may invest in zero coupon securities, which are securities that are
sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because the Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
DERIVATIVE INSTRUMENTS
The Fund is permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Fund. The Fund will limit its use of derivative instruments for non-hedging
purposes to 33 1/3% of its total assets measured by the aggregate notional
amount of outstanding derivative instruments. In addition, the Fund will not
enter into futures contracts and options on futures contracts to the extent that
the notional value of its outstanding obligations to purchase securities under
such contracts would exceed 20% of its total assets. The Fund's investments in
forward foreign currency contracts and derivatives used for hedging purposes are
not subject to the limits described above.
The Fund may use derivatives instruments under a number of different
circumstances to further its investment objective. The Fund may use derivatives
when doing so provides more liquidity than the direct purchase of the securities
underlying such derivatives. For example, the Fund may purchase derivatives to
quickly gain exposure to a market in response to changes in the Fund's
investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. The
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by the
Fund for hedging purposes and in other circumstances when the Fund's Adviser
believes it advantageous to do so consistent with the Fund's investment
objective.
Some of the derivative instruments in which the Fund may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Fund may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap
13
<PAGE>
and buys a floor. The risks associated with caps, floors and collars are similar
to those associated with options. In addition, caps, floors and collars are
subject to risk of default by the counterparty because they are privately
negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Fund may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Fund
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Fund may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Fund
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Fund may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Fund may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, the Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of the Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by the Fund and the prices of futures and
options relating to investments purchased or sold by the Fund, and (ii) possible
lack of a liquid secondary market for a futures contract and the resulting
inability to close a futures position. The risk that the Fund will be unable to
close out a futures position or options contract will be minimized by entering
into futures contracts or options transactions for which there appears to be a
liquid exchange or secondary market. The risk of loss in trading on futures
contracts in some strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of leverage involved in futures
pricing.
OPTIONS TRANSACTIONS. The Fund may seek to increase its returns or may
hedge its portfolio investments through options transactions with respect to (i)
securities, instruments, indices or baskets thereof in which the Fund may invest
and (ii) foreign currencies. Purchasing a put option gives the Fund the right to
sell a specified
14
<PAGE>
security, currency or basket of securities or currencies at the exercise price
until the expiration of the option. Purchasing a call option gives the Fund the
right to purchase a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the option.
The Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. The Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, the
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The Fund
may only write options that are "covered." A covered call option means that so
long as the Fund is obligated as the writer of the option, it will earmark or
segregate sufficient liquid assets to cover its obligations under the option or
own (i) the underlying security or instrument subject to the option, (ii)
securities or instruments convertible or exchangeable without the payment of any
consideration into the security or instrument subject to the option, or (iii) a
call option on the same underlying security with a strike price no higher than
the price at which the underlying instrument was sold pursuant to a short option
position.
By writing (or selling) a put option, the Fund incurs an obligation to buy
the security or instrument underlying the option from the purchaser of the put
at the option's exercise price at any time during the option period, at the
purchaser's election. The Fund may also write options that may be exercisable by
the purchaser only on a specific date. The Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Fund may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by the
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Fund may use structured notes to tailor its
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest rates, prices and total return on interest rate indices, fixed income
indices, stock indices and commodity indices (as well as amounts derived from
arithmetic operations on these indices). For example, the Fund may agree to swap
the return generated by a fixed income index for the return generated by a
second fixed income index. The currency swaps in which the Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
The Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two returns. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to
15
<PAGE>
a swap counterparty will be covered by the maintenance of a segregated account
consisting of cash or liquid securities. The Fund will not enter into any swap
agreement unless the counterparty meets the rating requirements set forth in
guidelines established by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that the Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, the
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of 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 market
values, interest rates and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique were not used.
INVESTMENT LIMITATIONS
The Fund is a diversified investment company under the 1940 Act, and,
therefore, with respect to 75% of its assets: (a) the Fund may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities and (b)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. The Fund also intends to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended ("the
Code"), for qualification as a regulated investment company.
The Fund also operates under certain investment restrictions that are deemed
fundamental policies and may be changed only with the approval of the holders of
a majority of the Fund's outstanding shares. See "Investment Limitations" in the
Statement of Additional Information. In addition, the Fund operates under
certain non-fundamental investment limitations as described in the Statement of
Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Fund. The
Adviser provides investment advice and portfolio management services pursuant to
an advisory agreement (the "Advisory Agreement") and, subject to the supervision
of the Company's Board of Directors, makes the Fund's investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Funds' investments. The Advisory Agreement also provides that the Adviser may
appoint sub-advisers to perform these portfolio management responsibilities. See
"Investment Sub-Adviser" below. The Adviser is entitled to receive an aggregate
advisory fee computed daily and paid monthly at the annual rate applied to the
Fund's average net assets as follows:
<TABLE>
<S> <C>
1.00%................... First $500 million
0.95%................... Next $500 million
0.90%................... Over $1 billion
</TABLE>
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Fund for all or
a portion of the Fund's other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are
16
<PAGE>
professionally distributed by leading financial advisers nationwide. The
Distributor of the Company and the sponsor of the funds mentioned above is also
a wholly-owned subsidiary of Van Kampen. The Adviser's principal office is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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; 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; and credit services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Fund. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Fund's investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Fund's investments.
The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of the Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If the
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had, together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion.
PORTFOLIO MANAGER. Andrew Brown, a Principal of MSAM, has primary
responsibility for managing the Fund's assets. Mr. Brown joined MSAM in May,
1994, as a consultant global research analyst specializing in non-cyclical
stocks, and became a Principal of the Firm in 1995. Mr. Brown spent the first
nine years of his business career as a journalist at Fortune magazine, and
worked from 1986 through 1991 as a sell side analyst for Morgan Stanley
International, specializing in UK and Continental European consumer stocks. He
then became research director at J.O. Hambro & Partners, and a partner in a
consulting firm before re-joining Morgan Stanley. Mr. Brown is a graduate of
Harvard University.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and transfer agent
services. For its services under the Administration Agreement, the Company pays
the Administrator a monthly fee which on an annual basis equals 0.25% of the
average daily net assets of the Fund.
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<PAGE>
Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Adviser, Administrator and the Company's
Distributor. The officers of the Company conduct and supervise its daily
business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Fund. The Company may in the future offer one or more classes of
shares for the Fund that may have sales charges or other distribution charges or
a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from the Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to Class C
shares, the Distributor expects to reallocate substantially all of its fee to
such Participating Dealers. The Distributor may, in its discretion, voluntarily
waive from time to time all or any portion of its distribution fee and the
Distributor is free to make additional payments out of its own assets to promote
the sale of Fund shares. Class A shares, Class B shares and Class C shares are
subject to a service fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of the Fund. In addition to
such payments, the Adviser or its affiliates may pay certain expenses associated
with activities which might be construed to be financing the sale of the Fund's
shares including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services). Any payments by the Adviser or its affiliates will be made directly
from their assets and will not be made from the assets of the Company or by the
assessment of a charge on shares.
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Fund will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
18
<PAGE>
outstanding voting securities of the applicable class of the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services (defined below). The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company 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 are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating 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. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly-owned subsidiary of Van
Kampen. When purchasing shares of the Company, 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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable 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 per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by Participating Dealers after the close of the New York Stock Exchange
(the "NYSE") are priced based on the net asset value per share calculated after
the next day's close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including higher distribution fees) resulting from
such sales arrangement,
19
<PAGE>
(ii) generally, each class has exclusive voting rights with respect to approvals
of the Rule 12b-1 distribution plan to which its distribution fee or service fee
is paid, (iii) certain shares are subject to a conversion feature, (iv) each
class has different exchange privileges and (v) each class has 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 higher distribution fees
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company'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.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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 "Fund Expenses" 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 shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, 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 an 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 most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
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. Investors should understand that the purpose and function of the CDSC
and ongoing distribution fee with respect to Class B shares and Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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 Participating 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 Company. Also, the Distributor in
its
20
<PAGE>
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 Company. 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 business
nature. In some instances, additional compensation or promotional incentives may
be offered to Participating Dealers that have sold or may sell significant
amount of shares during specified periods of time. 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. All of the foregoing payments are made by the Distributor out of its own
assets. These programs will not change the price an investor will pay for shares
or the amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
DEALERS
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- ------------------------------ --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$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 initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries 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, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating 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 Company. 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.
21
<PAGE>
Investors or their Participating Dealers must notify the Company 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 Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
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
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
("Asset Management") and distributed by the Distributor as determined from time
to time by the Company's Board of Directors.
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.
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
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charges 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 form 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company 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 Company 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 Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating 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
22
<PAGE>
investments in the Fund during each distribution period by all investors who
choose to invest in the Fund through the program and (2) provide Investor
Services with appropriate backup data for each participating investor in a
computerized format fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company 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 per share without an initial sales charge, upon written assurance
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the Fund, by:
(1) Current or retired trustees/directors of funds advised by the
Adviser or Asset Management 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 purchases are otherwise permitted by
such institutions.
(4) Registered investments 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 Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans which invest in multiple fund families through national wirehouse
alliance programs 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 alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a
retirement plan or held in a tax-advantaged retirement account who purchase
shares of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary 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 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. Section 403(b) and similar accounts for which Van
Kampen Trust Company ("Van Kampen Trust") 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. A
commission will be paid to dealers who initiate and are responsible for such
purchases within a rolling twelve month period as follows: 1.00% on sales up
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.
23
<PAGE>
(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 other 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 participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent 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
million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares or to redeem shares. Authorized dealers will be paid a service fee as
described herein under "Distribution Plans" on purchases made as described in
(3) through (9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Fund may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- -------------------------------------------------- ----------------
<S> <C>
First............................................. 5.00%
Second............................................ 4.00%
Third............................................. 3.00%
Fourth............................................ 2.50%
Fifth............................................. 1.50%
Thereafter........................................ None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
24
<PAGE>
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan as described
under "Management of the Company -- Distributor" above. Additionally, the
Distributor may pay additional promotional incentives in the form of cash or
other compensation to authorized dealers that sell Class B shares of the Fund.
The combination of the CDSC and the distribution fee facilitates the ability of
the Company to sell the Class B shares without a sales charge being deducted at
the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Fund may be purchased at the net asset value per share
and such shares are subject to a CDSC at the rate of 1.00% of the lesser of the
current market value of the shares redeemed or the total cost of such shares for
shares that are redeemed within one year of purchase. The Distributor will
generally make payments to the Participating Dealers that handle the purchases
of such shares at the rate of up to 1.00% of the purchase price of such shares
at the time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum amount of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described under "Redemption of Shares." A shareholder,
or their representative, must notify the Transfer Agent prior to the time of
redemption if such circumstances exist and the shareholder is eligible for this
waiver. The shareholder is responsible for providing sufficient documentation to
the Transfer Agent to verify the existence of such circumstances. For
information on the imposition and waiver of the CDSC, contact Investor Services
at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Fund or
classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Funds without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of a Fund at net asset value per share with no
initial sales charge. A Class C shareholder who has redeemed shares of a
Participating Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of a Fund with credit given for any CDSC paid upon
such redemption. The reinstatement privilege as to any specific Class A, Class B
or Class C shares must be exercised within 180 days of the redemption. The
Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
25
<PAGE>
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is also offered to participants
in those eligible retirement plans held or administered by Van Kampen Trust for
repayment of principal (and interest) on their borrowings on such plan. See the
Statement of Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Van Kampen Investor Services Inc. ("Investor Services").
Investor Services acts as transfer agent for the Company and performs
bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from Investor Services showing any reinvestments of dividends and
capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
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 of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, or in writing to Investor Services. The investor may, on the initial
application or prior to any declaration, instruct that dividends be paid in cash
and capital gains distributions be reinvested at net asset value, or that both
dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested in shares of the same class of any Participating
Fund, so long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or
26
<PAGE>
retirement. Any two non-retirement accounts can be used. 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 the 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 portfolio at its net asset value as of the payable date of the
distribution only if shares of such selected portfolio have been registered for
sale in the investor's state and are currently available for sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust 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.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the
same class of another Participating Fund based on the net asset value per share
of each Fund on the date of exchange, subject to certain limitations. Before
effecting an exchange, shareholders in the Company should obtain and read a
current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund 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.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take place at the relative net asset value
per share of the shares next determined after receipt of such request with
adjustment for any additional sales charge. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to
27
<PAGE>
reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment. If an
account has multiple owners, Investor Services may rely on the instructions of
any one owner.
SYSTEMATIC 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.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at time
the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company 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 purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
www.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of
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instructions communicated through the internet. If reasonable procedures are
employed, neither VK nor the Fund will be liable for following instructions
through the internet which it reasonably believes to be genuine. If an account
has multiple owners, Investor Services may rely on the instructions of any one
owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Company c/o Van Kampen Investor Services
Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through a Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would 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. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received (less any applicable CDSC) by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charge, if any) will ordinarily be made by check mailed within three business
days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 282-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason,
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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, Investor Services may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and
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<PAGE>
up to $1 million may be redeemed daily if the proceeds are to be paid by wire
sent to the shareholder's bank account of record. The proceeds must be payable
to the shareholder(s) of record. Proceeds from redemptions to be paid by check
will ordinarily be mailed within three business days to the shareholder's
address of record. Proceeds from redemptions to be paid by wire will ordinarily
be wired on the next business day to the shareholder's bank account of record.
This privilege is not available if the address or bank account of record has
been changed within 30 days prior to a telephone redemption request. The Company
reserves the right at any time to terminate, limit or otherwise modify this
telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C
shares 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 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 death or the initial determination of disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company 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 will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK") and the Company 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 VK nor the Company will be liable for following instructions which it
reasonably believes to be genuine. VK and the Company may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
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VALUATION OF SHARES
Net asset value is calculated separately for each class of the Fund. The net
asset value per share of each class of shares of the Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of the Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the Sub-Adviser select the brokers or dealers that will
execute the purchases and sales of investment securities for the Fund. The
Adviser and the Sub-Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the Fund to their clients or
who act as agents in the purchase of shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and affiliates of the Adviser and the Sub-Adviser or broker affiliates
of Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objective of the Fund is not to invest for short-term trading,
the Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective.
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Accordingly, investment securities may be sold from time to time without regard
to the length of time they have been held. The Fund anticipates that its annual
portfolio turnover rate will not exceed 100% under normal circumstances but
market conditions could result in portfolio activity at a greater or lesser rate
than anticipated. High portfolio turnover (i.e. 100% or more) involves
correspondingly greater transaction costs which will be borne directly by a
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Fund. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Fund, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
The Fund expects to distribute substantially all of its net investment
income in the form of annual dividends. The Fund expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of the
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase the Fund's net assets for the purpose of calculating net asset value
per share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net
asset value per share excludes the dividend or distribution (i.e., is reduced by
the per share amount of the dividend or distribution). Dividends and
distributions paid shortly after the purchase of shares by an investor, although
in effect a return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of the
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUND
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
The Fund and other portfolios of the Company are generally treated as
separate entities for federal income tax purposes, and thus the provisions of
the Code generally will be applied to each portfolio separately, rather than to
the Company as a whole. Accordingly, net long-term and short-term capital gains,
net income and operating expenses will be determined separately for each
portfolio.
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The Fund intends to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss, less any available capital loss carryforward) which is
distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
The Fund intends to distribute substantially all of its net investment
income (including, for this purpose, net short-term capital gain) to its
shareholders. Dividends paid by the Fund from its net investment income will be
taxable to the shareholders of the Fund as ordinary income, whether received in
cash or in additional shares, if the shareholder is subject to tax. Dividends
paid by the Fund attributable to dividends received from shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. The Fund will make
annual reports to shareholders of the federal income tax status of all
distributions. See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gain dividends).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary income and net capital gains prior to the end of each calendar year
to continue to qualify as an RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by the Fund in December that are
payable as of a record date in such month and are paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31st of the year in which they are
declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Fund.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum net capital
gains tax rate for corporations is 35%.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998, the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of the Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Fund have non-
33
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cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of Directors can elect 100% of the Directors if
they choose to do so. Under Maryland law, the Company is not required to hold an
annual meeting of its shareholders unless required to do so under the 1940 Act.
Any person or organization owning 25% or more of the outstanding shares of the
Fund may be presumed to "control" (as that term is defined in the 1940 Act) the
Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
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- --------------------------------------------------------------------------------
VAN KAMPEN
GLOBAL FRANCHISE FUND
A PORTFOLIO OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
VAN KAMPEN GROWTH AND INCOME FUND II
A PORTFOLIO OF THE
VAN KAMPEN SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of one of the Company's portfolios, Van Kampen Growth and
Income Fund II (the "Fund"). The Fund's investment objective is to seek capital
appreciation and current income. The Fund seeks to achieve its investment
objective by investing primarily in equity securities of rapidly growing
companies, or convertible securities or other equity-linked, income-generating
securities of such companies. There can be no assurance that the Fund's
investment objective will be achieved.
The Fund is designed to make available to retail investors the expertise of
Van Kampen Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator") and the Adviser's affiliates, including
Morgan Stanley Asset Management Inc. as a sub-adviser ("MSAM" or a "Sub-
Adviser") to the Fund and Van Kampen Funds Inc. as the Fund's distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers"). As of June 30,
1998, the Fund had not commenced investment operations.
This Prospectus is designed to set forth concisely the information about the
Fund that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers additional
portfolios which are described in other prospectuses. The Statement of
Additional Information and the prospectuses pertaining to the other portfolios
of the Company are available upon request and without charge by writing or
calling the Company at the address and telephone number set forth above. The
Statement of Additional Information and other materials regarding the Company
have been filed with the Securities and Exchange Commission and are available at
the Commission's internet web site (http://www.sec.gov).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION OF ITS AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 4
Investment Objective and Policies.......................................................................... 7
Additional Investment Information.......................................................................... 8
Investment Limitations..................................................................................... 15
Management of the Company.................................................................................. 15
Purchase of Shares......................................................................................... 18
Shareholder Services....................................................................................... 24
Redemption of Shares....................................................................................... 27
Valuation of Shares........................................................................................ 29
Portfolio Transactions..................................................................................... 30
Performance Information.................................................................................... 30
Dividends and Distributions................................................................................ 31
Taxes...................................................................................................... 31
General Information........................................................................................ 32
</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 COMPANY, 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 COMPANY TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
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PROSPECTUS SUMMARY
THE FUND
Van Kampen Growth & Income Fund II (the "Fund") is a separate investment
portfolio of the Van Kampen Series Fund, Inc., an open-end management investment
company.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek capital appreciation and current
income. There can be no assurance that the Fund's investment objective will be
achieved.
INVESTMENT PRACTICES
The Fund seeks to achieve its investment objective consistent by investing
primarily in equity securities of rapidly growing companies, or convertible
securities or other equity-linked, income-generating securities of such
companies.
RISK FACTORS
The investment policies of the Fund entail certain risks and considerations
of which an investor should be aware. The Fund invests primarily in equity
securities, which are subject to market risks that may cause their prices to
fluctuate over time. The Fund may invest in equity-linked securities which are
convertible upon various terms and conditions into equity securities. The Fund
may invest in securities of foreign issuers. Securities of foreign issuers are
subject to certain risks not typically associated with domestic securities. See
"Additional Investment Information -- Foreign Investment" for more information.
The Fund may invest in lower rated and unrated debt securities which are
considered speculative with regard to the payment of interest and return of
principal. The Fund may, to a limited extent, invest in non-publicly traded
securities, private placements and restricted securities. In addition, the Fund
may invest in repurchase agreements, borrow money, lend its portfolio
securities, and purchase securities on a when-issued or delayed delivery basis.
The Fund may invest in reverse repurchase agreements. The Fund may invest in
forward foreign currency exchange contracts and foreign currency exchange
futures and options to hedge the currency risks associated with investment in
non-U.S. dollar denominated securities. The Fund may invest in derivature
instrument which include options, futures and options on futures and swaps. Each
of these investment strategies involves specific risks which are described under
"Investment Objectives and Policies" and "Additional Investment Information"
herein and under "Investment Objectives and Policies" in the Statement of
Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Fund are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Fund are offered at net asset value per share plus a maximum initial sales
charge of 5.75% which initial sales charge may be reduced on certain large
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Fund are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of the
Fund, except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of the Fund, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of the Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
INVESTMENT ADVISERS
Van Kampen Advisory Corp. is the Fund's investment adviser (the "Adviser").
Morgan Stanley Asset Management Inc. provides sub-advisory services to the
Adviser (the "Sub-Adviser").
DISTRIBUTOR
Van Kampen Funds Inc. (the "Distributor") distributes the Fund's shares.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------- ---------------- ----------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price)................................................ 5.75%(1) None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price).................................. None None None
Maximum Deferred Sales Charge (as a percentage of the lesser of
original purchase price or redemption proceeds)................ None(2) Year 1--5.00% Year 1--1.00%
Year 2--4.00% 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 fees.................................................... None None None
</TABLE>
- ------------------------------
(1) Reduced for purchases of $50,000 and over. See "Purchase of 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."
4
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Investment Advisory Fee (1)
(after fee waiver)................................................................... 0.75% 0.75% 0.75%
12b-1 Distribution and Service Fees (2)............................................... 0.25% 1.00% 1.00%
Other Expenses (1)
(after expense reimbursement)........................................................ 0.45% 0.45% 0.45%
Total Operating Expenses (1)
(after expense reimbursement and/or fee waiver)...................................... 1.45% 2.20% 2.20%
</TABLE>
- ------------------------------
(1) The Adviser has agreed to waive a portion of its advisory fees and/or to
reimburse a portion of expenses of the Fund, if necessary, if the total
annual operating expenses of the Fund, as a percentage of average daily net
assets, would exceed the percentages set forth in the table above. The
following sets forth, for the Fund, (i) investment advisory fees absent
advisory fee waivers and (ii) expected other expenses absent expense
reimbursements and (iii) expected total operating expenses absent fee
waivers and/or expense reimbursements. The Adviser in its discretion may
terminate voluntary fee waivers and/or reimbursements at any time. Absent
the waiver of fees or reimbursement of expenses, the amounts in the examples
below would be greater.
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY FEES OTHER OPERATING EXPENSES
------------- EXPENSES ---------------------------------
ALL CLASSES ALL CLASSES CLASS A CLASS B CLASS C
------------- ------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund............. 0.75% 0.50% 1.50% 2.25% 2.25%
</TABLE>
For further information on Fund expenses, see "Management of the Company."
(2) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The expenses and fees for the Fund are based on the advisory
agreements, 12b-1 plans and estimates of other expenses because the Fund has not
commenced investment operations as of the date of this Prospectus.
5
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of the Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of the Fund, which have a CDSC, but no
initial sales charge, and (iii) Class C shares of the Fund which have a CDSC,
but no initial sales charge.
<TABLE>
<S> <C>
Class A shares
1 Year........................................................... $ 71(1)
3 Years.......................................................... 101
Class B shares
(Assuming complete redemption at end of period)
1 Year........................................................... $ 72
3 Years.......................................................... 99
(Assuming no redemption)
1 Year........................................................... $ 22
3 Years.......................................................... 69
Class C shares
(Assuming complete redemption immediately prior to the end of the
period)
1 Year........................................................... $ 32
3 Years.......................................................... 69
Class C shares
(Assuming no redemption)
1 Year........................................................... 22
3 Years.......................................................... 69
</TABLE>
- ------------------------------
(1) The example reflects Class A shares sold at the maximum 5.75% initial sales
charge. Certain large purchases may be subject to a reduced initial sales
charge. Purchases of Class A shares of the Fund which, when combined with
the value of the purchaser's existing investments in Class A shares of the
Participating Funds, aggregate to $1 million or more are not subject to an
initial sales charge but a CDSC of 1.00% will be imposed on such shares that
are redeemed within one year following such purchase.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation and
current income. The Fund's investment objective is a fundamental policy which
may not be changed by the Fund without the approval of a majority of the Fund's
outstanding voting securities. There can be no assurance the Fund will attain
its investment objective. The investment policies described below are not
fundamental policies and may be changed without shareholder approval. For more
information about certain investment practices common to the Fund and applicable
quality requirements, see "Additional Investment Information" below and
"Investment Objectives and Policies" in the Statement of Additional Information.
The Fund seeks to achieve its investment objective consistent with
reasonable investment risk by investing primarily in equity securities of
rapidly growing companies, or convertible securities or other equity-linked,
income-generating securities (e.g., PERCS, ELKS, LYONs) of such companies. The
Fund will also invest in slower-growth companies with stable or accelerating
earnings and/or dividend growth. The equity securities of the foregoing
companies in which the Fund will invest consist of common stock (dividend-paying
and, to the extent it is consistent with the Fund's investment objective,
nondividend-paying) and preferred stock. The Fund also invests in securities
convertible into common stock, such as convertible preferred stock, convertible
bonds and warrants and other equity-linked securities. The Fund will, under
normal market conditions, invest at least 65% of the value of its total assets
in such equity securities, convertible securities or other equity-linked
securities. The Fund is not subject to any limit on the size of companies in
which it may invest, but intends to be primarily invested, under normal
circumstances, in companies with equity market capitalizations of approximately
$750 million and above. The Fund is designed for investors who want an actively
managed diversified portfolio of selected equity securities that seeks to
outperform the total return of the S&P 500 Index, while providing a yield higher
than the yield of the S&P 500 Index.
The Fund does not seek to achieve its objective with any individual
portfolio security, but rather it aims to manage the portfolio as a whole in
such a way as to achieve its objective. The Fund attempts to reduce risk by
investing in many different economic sectors, industries and companies. The
Adviser may under- or over-weight selected economic sectors against the S&P 500
Index's sector weightings to seek to enhance the Fund's total return or reduce
fluctuations in market value relative to the S&P 500 Index. The Fund's primary
objective is not to invest for short-term trading, although the Fund will seek
to take advantage of trading opportunities as they arise to the extent that they
are consistent with the Fund's objective.
Pending investment or settlement, and for liquidity purposes, the Fund may
invest in domestic, Eurodollar and foreign short-term money market instruments.
As determined by the Adviser, the Fund may for temporary defensive purposes
invest a portion or all of its assets in such securities in response to adverse
market conditions.
The Fund may invest in when-issued and delayed delivery securities. The Fund
may invest up to 34% of its total assets in securities that are rated below
investment grade by a nationally recognized statistical rating organization (an
"NRSRO") (rated below the four highest rating categories by the NRSRO) or that,
if unrated, are determined by the Adviser to be comparable to securities rated
below investment grade by an NRSRO. Such lower-quality securities are regarded
as being predominantly speculative and involve significant risks.
The Fund may, to a limited extent, invest in non-publicly traded securities,
private placements and restricted securities. The Fund may on occasion invest in
securities of foreign issuers, including equity securities of foreign issuers
that trade on a United States exchange or over-the-counter in the form of
American Depositary Receipts or common stocks.
Any remaining assets of the Fund not invested as described above may be
invested in certain securities or obligations, including derivative securities,
as set forth in "Additional Investment Information" below.
YEAR 2000 RISKS. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and other service providers
do not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem". The
Adviser is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and obtain
7
<PAGE>
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, there can be no assurance that these
steps will be sufficient to avoid any adverse impact upon the Fund. In addition,
the Year 2000 Problem may adversely affect the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
the Fund.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
The Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Fund may invest in equity-linked securities, which are securities that
are convertible into, or the value of which is based upon the value of, equity
securities upon certain terms and conditions. The amount received by an investor
at maturity of such securities is not fixed but is based on the price of the
underlying common stock. It is impossible to predict whether the price of the
underlying common stock will rise or fall. Trading prices of the underlying
common stock will be influenced by the issuer's operational results, by complex,
interrelated political, economic, financial or other factors affecting the
capital markets, the stock exchanges on which the underlying common stock is
traded and the market segment of which the issuer is a part. In addition, it is
not possible to predict how equity-linked securities will trade in the secondary
market which is fairly developed and liquid. The market for such securities may
be shallow, however, and high volume trades may be possible only with
discounting. In addition to the foregoing risks, the return on such securities
depends on the creditworthiness of the issuer of the securities, which may be
the issuer of the underlying securities or a third party investment banker or
other lender. The creditworthiness of such third party issuer of equity-linked
securities may, and often does, exceed the creditworthiness of the issuer of the
underlying securities. The advantage of using equity-linked securities over
traditional equity and debt securities is that the former are income producing
vehicles that may provide a higher income than the dividend income on the
underlying equity securities while allowing some participation in the capital
appreciation of the underlying equity securities. Another advantage of using
equity-linked securities is that they may be used for hedging to reduce the risk
of investing in the generally more volatile underlying equity securities.
DEPOSITARY RECEIPTS
The Fund may on occasion invest in American Depositary Receipts ("ADRs").
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
Holders of unsponsored ADRs generally bear all the costs associated with
establishing the unsponsored ADR. The depositary of an unsponsored ADR is under
no obligation to distribute shareholder communications received from the
underlying issuer or to pass through to the holders of the unsponsored ADR
voting rights with respect to the deposited securities or pool of securities.
ADRs are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, ADRs in registered form
are designed for use in the U.S. securities market and ADRs in bearer form are
designed for use in securities markets outside the United States. The Fund may
invest in sponsored and unsponsored ADRs. For purposes of the Fund's investment
policies, the Fund's investments in ADRs will be deemed to be investments in the
underlying securities.
FOREIGN INVESTMENT
The Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting
8
<PAGE>
standards and requirements comparable to those applicable to domestic companies.
Therefore, disclosure of certain material information may not be made and less
information may be available to investors investing in foreign countries than in
the United States. There may also be less government supervision and regulation
of foreign securities exchanges, brokers and listed companies than in the United
States. Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Fund by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environments than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and the Fund may temporarily hold uninvested reserves in
bank deposits in foreign currencies. Therefore, the value of the Fund's assets
measured in U.S. Dollars may be affected favorably or unfavorably by changes in
currency exchange rates and exchange control regulations. The Fund will also
incur certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities of another open-end or closed-end
investment company by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations and as may otherwise be permitted by the Investment Company Act
of 1940, as amended (the "1940 Act").
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. The Fund may invest in these investment funds, including those
advised by MSAM, as well as other investment companies, subject to applicable
provisions of the 1940 Act and other applicable laws.
If the Fund invests in such investment companies, the Fund's shareholders
will bear not only their proportionate share of the expenses of the Fund
(including operating expenses and the fees of the Adviser), but also will
indirectly bear similar expenses of the underlying investment funds.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing its
net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Fund will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of the Fund's total assets. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral should
the borrower of the portfolio securities fail financially.
LOWER RATED AND UNRATED DEBT SECURITIES
The Fund may invest in lower rated or unrated debt securities, commonly
referred to as "junk bonds." In addition, the emerging markets country debt
securities in which the Fund may invest are subject to risk and will not be
required to meet a minimum rating standard and may not be rated. Fixed income
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity.
Lower rated or unrated securities are more likely to react to developments
affecting credit risk than are more highly rated securities, which react
primarily to
9
<PAGE>
movements in the general level of interest rates. The market values of
fixed-income securities tend to vary inversely with the level of interest rates.
Yields and market values of lower rated and unrated debt securities will
fluctuate over time, reflecting not only changing interest rates but the
market's perception of credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, medium to lower rated securities
may decline in value due to heightened concern over credit quality, regardless
of prevailing interest rates. Fluctuations in the value of the Fund's
investments will be reflected in the Fund's net asset value per share. The
Adviser considers both credit risk and market risk in making investment
decisions for the Fund. Investors should carefully consider the relative risks
of investing in lower rated and unrated debt securities and understand that such
securities are not generally meant for short-term investing.
Adverse economic developments may disrupt the market for U.S. corporate
lower rated and unrated debt securities and for emerging markets country debt
securities. Such disruptions may severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity. In addition, the secondary market for
lower rated and unrated debt securities, which is concentrated in relatively few
market makers, may not be as liquid as the secondary market for more highly
rated securities. As a result, the Adviser could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. In addition, there may be limited trading
markets for debt securities of issuers located in emerging markets countries.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect the
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of lower rated and unrated debt
securities.
MONEY MARKET INSTRUMENTS
The Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Fund include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
commercial paper including bank obligations, certificates of deposit (including
Eurodollar certificates of deposit) and repurchase agreements.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities. Further,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration. The Fund
may not invest more than 15% of its net assets in illiquid securities which
generally includes securities that
10
<PAGE>
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"); however, securities which can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("144A Securities") and are determined to be liquid under guidelines
adopted by, and subject to the supervision of, the Board of Directors are not
subject to the limitation on illiquid securities. Factors used to determine
whether 144A Securities are liquid include, among other things, a security's
trading history, availability of reliable pricing information, the number of
dealers making quotes or making a market in the security and the number of
potential purchasers in the market for the security. To the extent that
qualified institutional buyers become uninterested in buying 144A Securities,
such securities in the Fund's portfolio could increase the Fund's level of
illiquidity. Notwithstanding the foregoing, the Fund may not invest more than
10% of its total assets in securities subject to legal or contractual restraints
on resale.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Fund's Board of Directors. In a repurchase agreement, the Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term of these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Fund to the seller. The Fund always receives securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, the Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon sale of the collateral may be delayed or limited.
Repurchase agreements with durations (or maturities) over seven days in length
are considered illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with brokers, dealers,
banks or other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a reverse repurchase agreement, the Fund sells
a security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. It may
also be viewed as the borrowing of money by the Fund. The Fund's investment of
the proceeds of a reverse repurchase agreement is the speculative factor known
as leverage. The Fund will enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is expected to be greater than
the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. The Fund will maintain with an
appropriate custodian a separate account with a segregated portfolio of cash or
liquid securities in an amount at least equal to its purchase obligations under
these agreements (including accrued interest). If interest rates rise during a
reverse repurchase agreement, it may adversely affect the Fund's ability to
maintain a stable net asset value. In the event that the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes insolvent,
the buyer or its trustee or receiver may receive an extension of time to
determine whether to enforce the Fund's repurchase obligation, and the Fund's
use of proceeds of the agreement may effectively be restricted pending such
decision.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
In such transactions, instruments are bought with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price at the time of the transaction. The payment obligation and the
interest rates that will be received are each fixed at the time the Fund enters
into the commitment, and no interest accrues to the Fund until settlement. Thus,
it is possible that the market value at the time of settlement could be higher
or lower than the purchase price if the general level of interest rates has
changed. It is a current policy of the Fund not to enter into when-issued
commitments or delayed delivery securities transactions exceeding, in the
aggregate, 15% of the Fund's net assets other than the obligations created by
these commitments.
11
<PAGE>
DERIVATIVE INSTRUMENTS
The Fund is permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Fund may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Fund. The Fund will limit its use of the foregoing derivative instruments
for non-hedging purposes to 33 1/3% of its total assets measured by the
aggregate notional amount of outstanding derivative instruments. In addition,
the Fund will not enter into futures contracts and options on futures contracts
to the extent that the notional value of its outstanding obligations to purchase
securities under such contracts would exceed 20% of its total assets. The Fund's
investments in forward foreign currency contracts and derivatives used for
hedging purposes are not subject to the limits described above.
The Fund may use derivative instruments under a number of different
circumstances to further its investment objectives. The Fund may use derivatives
when doing so provides more liquidity than the direct purchase of the securities
underlying such derivatives. For example, the Fund may purchase derivatives to
quickly gain exposure to a market in response to changes in the Fund's
investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. The
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by the
Fund for hedging purposes and in other circumstances when the Fund's Adviser
believes it advantageous to do so consistent with the Fund's investment
objective. The Fund will not, however, use derivatives in a manner that creates
leverage, except to the extent that the use of leverage is expressly permitted
by the Fund's investment policies, and then only in a manner consistent with
such policies.
Some of the derivative instruments in which the Fund may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Fund may invest in caps, floors and collars,
which are instruments analogous to option transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Fund may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Fund
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
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The Fund may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Fund
may engage in such transactions to hedge its respective holdings and commitments
against changes in the level of future currency rates or to adjust its exposure
to a particular currency.
The Fund may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Fund may engage in such transactions to hedge its
holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Fund may
engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, the Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of the Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by the Fund and the prices of futures and
options relating to investments purchased or sold by the Fund, and (ii) possible
lack of a liquid secondary market for a futures contract and the resulting
inability to close a futures position. The risk that the Fund will be unable to
close out a futures position or options contract will be minimized by only
entering into futures contracts or options transactions for which there appears
to be a liquid exchange or secondary market. The risk of loss in trading on
futures contracts in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing.
OPTIONS TRANSACTIONS. The Fund may seek to increase its returns or may
hedge its portfolio investments through options transactions with respect to (i)
securities, instruments, indices or baskets thereof in which the Fund may invest
and (ii) foreign currencies. Purchasing a put option gives the Fund the right to
sell a specified security, currency or basket of securities or currencies at the
exercise price until the expiration of the option. Purchasing a call option
gives the Fund the right to purchase a specified security, currency or basket of
securities or currencies at the exercise price until the expiration of the
option.
The Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. The Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, the
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The Fund
may only write options that are "covered." A covered call option means that so
long as the Fund is obligated as the writer of the option, it will earmark or
segregate sufficient liquid assets to cover its obligations under the option or
own (i) the underlying security or instrument subject to the option, (ii)
securities or instruments convertible or exchangeable without the payment of any
consideration into the security or instrument subject to the option, or (iii) a
call option on the same underlying security with a strike price no higher than
the price at which the underlying instrument was sold pursuant to a short option
position.
By writing (or selling) a put option, the Fund incurs an obligation to buy
the security or instrument underlying the option from the purchaser of the put
at the option's exercise price at any time during the option period, at the
purchaser's election. The Fund may also write options that may be exercisable by
the purchaser
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only on a specific date. When the Fund writes a put option, it will earmark or
segregate sufficient liquid assets to cover its obligations under the option or
will own a put option on the same underlying security with an equal or higher
strike price.
The Fund may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by the
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Fund may use structured notes to tailor its
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest rates, prices and total return on interest rate indices, fixed income
indices, stock indices and commodity indices (as well as amounts derived from
arithmetic operations on these indices). For example, the Fund may agree to swap
the return generated by a fixed income index for the return generated by a
second fixed income index. The currency swaps in which the Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
The Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two returns. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. The Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that the Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, the
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
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The use of 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 market
values, interest rates and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique were not used.
INVESTMENT LIMITATIONS
The Fund is a diversified investment company under the 1940 Act, and
therefore, with respect to 75% of its total assets: is subject to the following
(a) the Fund may not invest more than 5% of its total assets in the securities
of any one issuer, except obligations of the U.S. Government, its agencies and
instrumentalities, and (b) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The Fund also intends to comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. The
Fund also operates under certain investment restrictions that are deemed
fundamental policies and may be changed only with the approval of the holders of
a majority of the Fund's outstanding shares. See "Investment Limitations" in the
Statement of Additional Information. In addition, each Fund operates under
certain non-fundamental investment limitations as described in the Statement of
Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Fund. The
Adviser provides investment advice and portfolio management services pursuant to
an advisory agreement (the "Advisory Agreement") and subject to the supervision
of the Company's Board of Directors, makes the Fund's investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Fund's investments. The Advisory Agreement also provides that the Adviser may
appoint sub-advisers to perform these portfolio management responsibilities. See
"Investment Sub-Adviser" below. The Adviser is entitled to receive an aggregate
advisory fee computed daily and paid monthly at the annual rate of 0.75% applied
to the Fund's average daily net assets.
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Fund for all or
a portion of the Fund's other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen Investments Inc.
("Van Kampen"). Van Kampen is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Van Kampen's more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Van Kampen
Investments. The Adviser's principal office is located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.
Van Kampen is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Dean Witter & Co. and various of its directly or
indirectly owned subsidiaries, including 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; asset management;
trading of futures, options, foreign exchange commodities and swaps (including
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending; and credit services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Fund. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Fund's investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Fund's investments.
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The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of the Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If the
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had, together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion.
PORTFOLIO MANAGERS.
Kurt A. Feuerman and Margaret Kinsley Johnson have primary portfolio
management responsibility for the Fund's assets. Kurt Feuerman is a Managing
Director of the Sub-Adviser. Prior to joining the Sub-Adviser in July 1993, he
spent over three years in Morgan Stanley & Co. Incorporated's ("Morgan Stanley")
Research Department where he was responsible for restaurant, gaming and emerging
growth stocks. Before joining Morgan Stanley, Mr. Feuerman was a Managing
Director at Drexel Burnham Lambert, where he had been an equity analyst since
1984. Mr. Feuerman earned a B.A. degree from McGill University, an M.A. from
Syracuse University, and an M.B.A. from Columbia University. Margaret Johnson is
a Principal of the Sub-Adviser. She joined Morgan Stanley in 1984 as a marketing
analyst. She became an equity analyst in 1986 and a portfolio manager in 1989.
She holds a B.A. degree from Yale College and is a Chartered Financial Analyst.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Adviser through its
agents will provide the Company dividend disbursing and transfer agent services.
For its services under the Administration Agreement, the Company pays the
Adviser a monthly fee which on an annual basis equals 0.25% of the average daily
net assets of the Fund.
Under a sub-administration agreement between the Adviser and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the administration agreement are
subject to the supervision of the Board of Directors of the Company. The Board
of Directors of the Company has approved the provision of services described
above pursuant to the sub-administration agreement as being in the best
interests of the Company. CGFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913. For additional information on the administration
agreement, see "Management of the Company" in the Statement of Additional
Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
review the actions of the Adviser, Sub-Adviser, Administrator and Distributor.
The Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
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The Company currently offers Class A shares, Class B shares and Class C
shares of the Fund. The Company may in the future offer one or more classes of
shares for the Fund that may have sales charges or other distribution charges or
a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Fund
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from the Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of the Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to the
Class C shares, the Distributor expects to reallocate substantially all of its
fee to such Participating Dealers. The Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee
and the Distributor is free to make additional payments out of its own assets to
promote the sale of Fund shares. Class A shares, Class B shares and Class C
shares are subject to a service fee at an annual rate of 0.25% on an annualized
basis of the average daily net assets of such class of shares of the Fund. In
addition to such payments, the Adviser or its affiliates may pay certain
expenses associated with activities which might be construed to be financing the
sale of the Fund's shares, including payments to third parties that provide
assistance in the distribution effort (in addition to selling shares and
providing shareholder services). Any payments by the Adviser or its affiliates
will be made directly from their assets and will not be made from the assets of
the Company or by the assessment of a charge on shares.
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Fund will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Van Kampen Investor Services Inc. The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
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PURCHASE OF SHARES
GENERAL
The Company 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 are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating 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. The $500
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly-owned subsidiary of Van
Kampen. When purchasing shares of the Company, 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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable 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 per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by Participating Dealers after the close of the New York Stock Exchange
(the "NYSE") are priced based on the net asset value per share calculated after
the next day's close provided they are received by the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, 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 fees) resulting
from such sales arrangement, (ii) generally, each class has exclusive voting
rights with respect to approvals of the Rule 12b-1 distribution plan to which
its distribution fee or service fee is paid, (iii) Class B shares are subject to
a conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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 higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company'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.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or 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
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table under the caption "Fund Expenses" 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 shares at net asset value, as described herein under "Purchase of
Shares -- Class A Shares." For these reasons, 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 most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
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. Investors should understand that the purpose and function of the CDSC
and ongoing distribution fee with respect to Class B shares and Class C shares
are the same as those of the initial sales charge with respect to Class A
shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating 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 Participating 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 Company. 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 Company. 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 business
nature. In some instances additional compensation or promotional incentives may
be offered to Participating Dealers that have sold or may sell significant
amounts of shares during specified periods of time. 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. All of the foregoing payments are made by the Distributor out of its own
assets. These programs will not change the price an investor will pay for shares
or the amount that the Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
19
<PAGE>
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET AMOUNT (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE INVESTED PRICE)
- --------------------------------------------------------- --------------- ------------------- -----------------------
<S> <C> <C> <C>
Less than $50,000........................................ 5.75 6.10 5.00
$50,000 but less than $100,000........................... 4.75 4.99 4.00
$100,000 but less than $250,000.......................... 3.75 3.90 3.00
$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 initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries 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, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act. The
Distributor may also pay financial institutions (which may include banks) and
other industry professionals that provide services to facilitate transactions in
shares of the Company for their clients a transaction fee up to the level of the
reallowance allowable to Participating Dealers described herein. Such financial
institutions, other industry professionals and Participating 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 Company. 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 Participating Dealers must notify the Company 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 Participating 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
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen Asset Management Inc.
and distributed by the Distributor as determined from time to time by the
Company's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the preceding sales
charge tables 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.
20
<PAGE>
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
tables 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 investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding tables 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 charges 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 form 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 Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company 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 Company 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 Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in the Fund during each distribution period by all investors who choose to
invest in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
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 Company
will send account activity statements to such participants on a monthly basis
only, even if their investments are made more frequently. The Company 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 per share without an initial sales charge, 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 of funds advised by the Adviser or Van
Kampen Asset Management, Inc. and such persons' families and their
beneficial accounts.
(2) Current or retired trustees, 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.
21
<PAGE>
(3) Trustees, 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 investments 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 Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans which invest in multiple fund families through national wirehouse
alliance programs 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 alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a
retirement plan or held in a tax-advantaged retirement account who purchase
shares of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary 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 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. Section 403(b) and similar accounts for which Van
Kampen Trust Company ("Van Kampen Trust") 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. A
commission will be paid to dealers who initiate and are responsible for such
purchases within a rolling twelve month period as follows: 1.00% on sales up
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of the Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of the Fund and other 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 participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent 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
million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents, and a person's spouse's parents.
22
<PAGE>
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Fund may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF THE
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT WAS MADE SUBJECT TO CHARGE
- ---------------------------------------------------------------------------- -------------------
<S> <C>
First....................................................................... 5.00%
Second...................................................................... 4.00%
Third....................................................................... 3.00%
Fourth...................................................................... 2.50%
Fifth....................................................................... 1.50%
Thereafter.................................................................. None*
</TABLE>
- ------------------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan, as
described under "Management of the Company -- Distributor" above. Additionally,
the Distributor may pay additional promotional incentives, in the form of cash
or other compensation, to authorized dealers that sell Class B shares of the
Fund. The combination of the CDSC and the distribution fee facilitates the
ability of the Company to sell the Class B shares without a sales charge being
deducted at the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
23
<PAGE>
PURCHASE OF CLASS C SHARES
Class C shares of the Fund may be purchased at the net asset value per share
and such shares are subject to a CDSC at the rate of 1.00% of the lesser of the
current market value of the shares redeemed or the total cost of such shares for
shares that are redeemed within one year of purchase. The Distributor will
generally make payments to the Participating Dealers that handle the purchases
of such shares at the rate of up to 1.00% of the purchase price of such shares
at the time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described herein under "Redemption of Shares." A
shareholder, or their representative, must notify the Transfer Agent prior to
the time of redemption if such circumstances exist and the shareholder is
eligible for this waiver. The shareholder is responsible for providing
sufficient documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Fund or
classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Fund without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of the Fund at net asset value per share with
no initial sales charge. A Class C shareholder who has redeemed shares of a
Participating 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. The reinstatement privilege as to any specific Class A,
Class B or Class C shares must be exercised within 180 days of the redemption.
The Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinstatement is made pursuant to this reinstatement privilege.
If a loss is realized on the redemption of Class A shares, the reinstatement may
be subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is also offered to participants
in those eligible retirement plans held or administered by Van Kampen Trust for
repayment of principal (and interest) on their borrowings. See the Statement of
Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
24
<PAGE>
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Investor Services. Investor Services acts as transfer agent
for the Company and performs bookkeeping, data processing and administration
services related to the maintenance of shareholder accounts. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from Investor Services showing any reinvestments
of dividends and capital gains distributions and any other activity in the
account since the preceding statement. Such shareholders also will receive
separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Van Kampen Series Fund, Inc.
c/o Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
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) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder. Both accounts must also be of the same type, either
non-retirement or retirement. Any two non-retirement accounts can be used. 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 the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the portfolio into which distributions would be invested. Distributions are
invested into the selected portfolio at its net asset value as of the payable
date of the distribution only if shares of such selected portfolio have been
registered for sale in the investor's state and are currently available for
sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Van Kampen Trust 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.
25
<PAGE>
EXCHANGE PRIVILEGE. Shares of the Fund or any Participating Fund may be
exchanged with shares of the same class of another Participating Fund based on
the net asset value per share of each fund on the date of exchange, subject to
certain limitations. Before effecting an exchange, shareholders in the Company
should obtain and read a current prospectus of the Participating Funds into
which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER
PARTICIPATING FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE
CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund 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.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take place at the relative net asset value
per share of the shares next determined after receipt of such request with
adjustment for any additional sales charge. Any shares exchanged begin earning
dividends on the next business day after the exchange is affected. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary 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 dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment. If an
account has multiple owners, Investor Services may rely on the instructions of
any one owner.
SYSTEMATIC 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.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan was commenced. Under this CDSC waiver
policy, amounts withdrawn each period will be paid by redeeming first shares not
subject to a CDSC because the shares were purchased by the reinvestment of
dividends or capital gains distributions, the CDSC period has elapsed or some
26
<PAGE>
other waiver of the CDSC applies. If shares subject to a CDSC must be redeemed,
shares held for the longest period of time will be redeemed first and continuing
with shares held the next longest period of time until shares held the shortest
period of time are redeemed.
Under the plan, sufficient shares of the Company 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 purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 1-800-282-4404. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Van Kampen
Investor Services, Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As
in the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Shares held in broker street name may be
transferred only by contacting your Participating Dealer.
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
www.van-kampen.com for further instruction. Van Kampen and its subsidiaries,
including Investor Services (collectively, "VK"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of instructions communicated through the
internet. If reasonable procedures are employed, neither VK nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, any applicable CDSC) at any time by sending a
written request in proper form directly to the Company c/o Van Kampen Investor
Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through a Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would 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. If certificates are held for the
shares being redeemed,
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such certificates must be endorsed for transfer or accompanied by an endorsed
stock power and sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, additional documents may be necessary. The redemption price is
the net asset value per share next determined after the request is received by
Investor Services in proper form. Payment for shares redeemed will ordinarily be
made by check mailed within seven business days after acceptance by Investor
Services of the request and any other necessary documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received, less any applicable CDSC, by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company 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 Company at (800) 287-4404,
or (800) 772-8889 for the hearing impaired, 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. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern 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, Investor Services may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. 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 Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSCs on Class B shares and Class C
shares 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
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survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of death or 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 death or initial determination of disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Van Kampen Trust serves as
IRA custodian, special IRA, 403(b)(7), or Keogh redemption forms must be
obtained from and be forwarded to Van Kampen Trust Company, P.O. Box 944,
Houston, Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. VK and the Company 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 VK nor the Company will be liable for following instructions which it
reasonably believes to be genuine. VK and the Company may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of shares of the
Fund. The net asset value per share of each class of shares of the Fund is
determined by dividing the total fair market value of the investments and other
assets attributable to such class of shares, less all liabilities attributable
to such class of shares, by the total number of outstanding shares of such class
of shares. Net asset value per share of the Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the
29
<PAGE>
specific securities. Securities not priced in this manner are valued at the most
recent quoted bid price, or, when stock exchange valuations are used, at the
closing price, or if that is unavailable, the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the Sub-Adviser select the brokers or dealers that will
execute the purchases and sales of investment securities for the Fund. The
Adviser and the Sub-Adviser may, consistent with NASD rules, place portfolio
orders with qualified broker-dealers who recommend the Fund to their clients or
who act as agents in the purchase of shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Adviser and the Sub-Adviser, or broker affiliates
of Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objective of the Fund is not to invest for short-term trading,
the Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Fund anticipates that its annual portfolio
turnover rate will not exceed 100% under normal circumstances but market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. High portfolio turnover (i.e. 100% or more) involves
correspondingly greater transaction costs which will be borne directly by the
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Fund. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in the Fund
would have earned over a specified period of time (such as one, three, five or
ten years) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period. Total return does not
take into account any federal or state income tax consequences to shareholders
subject to tax. The Company may also include comparative performance information
in advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
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DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Fund, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
The Fund expects to distribute substantially all of its net investment
income in the form of annual dividends. The Fund expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of the
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase the Fund's net assets for the purpose of calculating net asset value
per share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net
asset value per share excludes the dividend or distribution (i.e., is reduced by
the per share amount of the dividend or distribution). Dividends and
distributions paid shortly after the purchase of shares by an investor, although
in effect a return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of the
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUND
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Fund or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
The Fund is generally treated as a separate entity for federal income tax
purposes, and thus the provisions of the Code generally will be applied to the
Fund separately, rather than to the Company as a whole. Accordingly, net
long-term and short-term capital gains, net income and operating expenses will
be determined separately for the Fund.
The Fund intends to qualify for and to elect the special tax treatment
afforded "regulated investment companies" ("RICs") under Subchapter M of the
Code so that it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss, less any available capital loss carryforward)
which is distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
The Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by the Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by the
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. The Fund will make
annual reports to shareholders of the federal income tax status of all
distributions. See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gain dividends).
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The Fund intends to make sufficient distributions or deemed distributions of
its ordinary income and net capital gains prior to the end of each calendar year
to continue to qualify as an RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by the Fund in October, November
and December that are payable as of a record date in such month and are paid at
any time during January of the following year are treated as having been paid by
the Fund and received by the shareholders on December 31st of the year in which
they are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Fund.
The maximum tax rates applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Morgan Stanley Fund, Inc. On July 14, 1998, the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of the Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act. Any person or organization owning 25% or
more of the outstanding shares of the Fund may be presumed to "control" (as that
term is defined in the 1940 Act) the Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
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CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Morgan Stanley Trust Company,
Brooklyn, New York ("Morgan Stanley Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Van Kampen Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Street, Chicago, Illinois
60601, serves as independent accountants for the Company and audits its annual
financial statements.
33
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S RATINGS GROUP -- CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
A-1
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BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
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- --------------------------------------------------------------------------------
VAN KAMPEN
GROWTH AND INCOME FUND II
A PORTFOLIO OF
VAN KAMPEN SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of twenty-three investment
portfolios designed to offer a range of investment choices (each, a "Fund" and
collectively, the "Funds"). The Company is designed to make available to
investors the expertise of (i) Van Kampen Investment Advisory Corp. as an
investment adviser (the "Adviser") and administrator (the "Administrator") to
the Funds, (ii) Morgan Stanley Asset Management Inc. ("MSAM"), a sub-adviser (a
"Sub-Adviser") to the Funds, other than the Van Kampen Mid Cap Growth Fund and
Van Kampen Value Fund and (iii) Miller, Anderson & Sherrerd, LLP ("MAS"), a
sub-adviser (a "Sub-Adviser") to the Van Kampen Mid Cap Growth Fund and Van
Kampen Value Fund. As of the date hereof, the Van Kampen Emerging Markets Debt
Fund, Van Kampen European Equity Fund, Van Kampen Growth and Income Fund II, Van
Kampen Japanese Equity Fund, Van Kampen Mid Cap Growth Fund, Morgan Stanley
Tax-Free Money Market Fund and Van Kampen Global Franchise Fund have not
commenced a continuous offering of shares.
This Statement of Additional Information "SAI" is not a prospectus but
should be read in conjunction with the Company's prospectuses dated September
30, 1998, as amended and supplemented from time to time (each a "Prospectus" and
together, the "Prospectuses"). To obtain the Prospectuses, please call the Van
Kampen Series Fund, Inc. at:
1-800-341-2911
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES...... 2
FEDERAL INCOME TAX...................... 15
FEDERAL INCOME TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE
CONTRACTS.............................. 18
TAXES AND FOREIGN SHAREHOLDERS.......... 19
PURCHASE OF SHARES...................... 19
REDEMPTION OF SHARES.................... 19
INVESTMENT LIMITATIONS.................. 21
DETERMINING MATURITIES OF CERTAIN
INSTRUMENTS............................ 26
MANAGEMENT OF THE COMPANY............... 26
MONEY MARKET FUND NET ASSET VALUE....... 37
PORTFOLIO TRANSACTIONS.................. 38
PERFORMANCE INFORMATION................. 38
GENERAL INFORMATION..................... 45
DESCRIPTION OF SECURITIES AND RATINGS... 46
FINANCIAL STATEMENTS.................... 48
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Date: September 30, 1998
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INVESTMENT OBJECTIVES AND POLICIES
The following policies (listed in alphabetical order) supplement the
investment objectives and policies set forth in the Company's Prospectuses with
respect to the Company's twenty-three Funds: Van Kampen Global Fixed Income
Fund, Van Kampen Worldwide High Income Fund, Van Kampen High Yield & Total
Return Fund, Van Kampen American Value Fund, Van Kampen Aggressive Equity Fund,
Van Kampen U.S. Real Estate Fund, Van Kampen Global Equity Allocation Fund, Van
Kampen Asian Growth Fund, Van Kampen Emerging Markets Fund, Van Kampen Latin
American Fund, Van Kampen International Magnum Fund, Van Kampen Japanese Equity
Fund, Van Kampen Growth and Income Fund II, Van Kampen European Equity Fund, Van
Kampen Equity Growth Fund, Van Kampen Global Equity Fund, Van Kampen Emerging
Markets Debt Fund, Van Kampen Mid Cap Growth Fund, Van Kampen Value Fund and Van
Kampen Global Franchise Fund (collectively, the "Non-Money Funds") and Morgan
Stanley Money Market Fund, Morgan Stanley Tax-Free Money Market Fund and Morgan
Stanley Government Obligations Money Market Fund (collectively, the "Money
Market Funds"). For ease of reference, the words "Van Kampen" or "Morgan
Stanley," which begin the name of each Fund, are not used hereinafter.
EMERGING COUNTRY DEBT SECURITIES
GENERAL. The Emerging Markets Debt and Worldwide High Income Funds'
definition of emerging market country debt securities includes securities of
companies that may have characteristics and business relationships common to
companies in a country or countries other than an emerging market country. As a
result, the value of the securities of such companies may reflect economic and
market forces applicable to other countries, as well as to an emerging market
country. The Adviser believes, however, that investment in such companies will
be appropriate because the Funds will invest in those emerging market companies
which, in its view, have sufficiently strong exposure to economic and market
forces in an emerging market country such that their value will tend to reflect
developments in such emerging market country to a greater extent than
developments in another country or countries. For example, the Funds may invest
in companies organized and located in countries other than an emerging market
country, including companies having their entire production facilities outside
of an emerging market country, when securities of such companies meet one or
more elements of the Funds' definition of an emerging market country debt
security and so long as the Adviser believes at the time of investment that the
value of the company's securities will reflect principally conditions in such
emerging market country.
The Emerging Markets Debt Fund and Worldwide High Income Fund are subject to
no restrictions on the maturities of the emerging market country debt securities
they hold; those maturities may range from overnight to 30 years. The value of
debt securities held by a Fund generally will vary inversely to changes in
prevailing interest rates. A Fund's investments in fixed-rated debt securities
with longer terms to maturity are subject to greater volatility than the Fund's
investments in shorter-term obligations. Debt obligations acquired at a discount
are subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which are not
subject to such discount.
Government, government-related and restructured debt securities in emerging
market countries will consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging market countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging market countries, and (iii) interests in
issuers organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.
Such type of restructuring involves the deposit with or purchase by an entity of
specific instruments and the issuance by that entity of one or more classes of
securities backed by, or representing interests in, the underlying instruments.
Certain issuers of such structured securities may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, a Fund's investment in such securities may be limited
by certain investment restrictions contained in the 1940 Act.
Investments in emerging market country government debt securities involve
special risks. Certain emerging market countries have historically experienced,
and may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and unemployment. The issuer or
governmental authority that controls the repayment of an emerging market
country's debt may not be able or willing to repay the principal and/or interest
when due in accordance with the terms of such debt. As a result of the
foregoing, a government obligor may default on its obligations. If such an event
occurs, a Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
Debt securities of corporate issuers in emerging market countries may
include debt securities or obligations issued (i) by banks located in emerging
market countries or by branches of emerging market country banks located outside
the country or (ii) by companies organized under the laws of an emerging market
country. Determinations as to eligibility will be made by the Adviser based on
publicly available information and inquiries made to the issuer.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S.
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debt instrument is denominated. Instruments issued by a foreign government in
other than the local currency, for example, typically have a lower rating than
local currency instruments due to the existence of an additional risk that the
government will be unable to obtain the required foreign currency to service its
foreign currency-denominated debt. In general, the ratings of debt securities or
obligations issued by a non-U.S. public or private entity will not be higher
than the rating of the currency or the foreign currency debt of the central
government of the country in which the issuer is located, regardless of the
intrinsic creditworthiness of the issuer.
The Funds do not intend to invest in any security in a country where the
currency is not freely convertible to U.S. Dollars, unless the Fund has obtained
the necessary governmental licensing to convert such currency or other
appropriately licensed or sanctioned contractual guarantee to protect such
investment against loss of that currency's external value, or the Fund has a
reasonable expectation at the time the investment is made that such governmental
licensing or other appropriately licensed or sanctioned guarantee would be
obtained or that the currency in which the security is quoted would be freely
convertible at the time of any proposed sale of the security by the Fund.
The governments of some countries have been engaged in programs of selling
part or all of their stakes in government owned or controlled enterprises
("privatization"). The Adviser believes that privatization may offer investors
opportunities for significant capital appreciation and intends to invest assets
of the Fund in privatization in appropriate circumstances. In certain countries,
the ability of foreign entities, such as the Fund, to participate in
privatization may be limited by local law, or the terms on which the Fund may be
permitted to participate may be less advantageous than those for local
investors. There can be no assurance that governments will continue to sell
companies currently owned or controlled by them or that any privatization
programs in which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use sovereign debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Fund may participate in Latin American debt conversion programs. The Adviser
will evaluate opportunities to enter into debt conversion transactions as they
arise.
BRADY BONDS. The Emerging Markets Debt Fund and Worldwide High Income Fund
may invest in certain debt obligations customarily referred to as "Brady Bonds,"
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury Nicholas F. Brady
(the "Brady Plan"). Brady Bonds may be collateralized or uncollateralized and
issued in various currencies (although most are U.S. dollar-denominated) and
they are actively traded in the over-the-counter secondary market. A Fund may
purchase Brady Bonds either in the primary or secondary markets. The price and
yield of Brady Bonds purchased in the secondary market will reflect the market
conditions at the time of purchase, regardless of the stated face amount and the
stated interest rate. With respect to Brady Bonds with no or limited
collateralization, a Fund will rely for payment of interest and principal
primarily on the willingness and ability of the issuing government to make
payment in accordance with the terms of the bonds.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
EQUITY-LINKED SECURITIES
The Value Fund, Mid Cap Growth Fund, Global Equity Fund, Equity Growth Fund,
European Equity Fund, Growth and Income Fund II, Aggressive Equity Fund and
Global Franchise Fund may invest in equity-linked securities, including, among
others, PERCS, ELKS, or LYONs, which are securities that are convertible into,
or the value of which is based upon the value of, equity securities upon certain
terms and conditions. The amount received by an investor at maturity of such
securities is not fixed
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but is based on the price of the underlying common stock. It is not possible to
predict how equity-linked securities will trade in the secondary market or
whether such market will be liquid or illiquid. The following are three examples
of equity-linked securities. The Funds may invest in the securities described
below or other similar equity-linked securities. There are certain risks of loss
of principal in connection with investing in equity-linked securities, as
described in the following examples of certain equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") convert into common
stock within three years regardless of the price at which the common stock
trades. If the common stock is trading at a price that is at or below the cap, a
Fund receives one share of common stock for each PERCS share. If the common
stock is trading at a price that is above the cap, the Fund receives less than
one share, with the conversion ratio adjusted so that the market value of the
common stock received by the Fund equals the cap. Accordingly, a Fund is subject
to the risk that if the price of the common stock is above the cap price at the
maturity of the PERCS, the Fund will lose the amount of the difference between
the price of the common stock and the cap. Such a loss could substantially
reduce the Fund's initial investment in the PERCS and any dividends that were
paid on the PERCS. PERCS also present risks based on payment expectations. If a
PERCS issuer redeems the PERCS, the Fund may have to replace the PERCS with a
lower yielding security, resulting in a decreased return for investors.
The principal amount that Equity-Linked Securities ("ELKS") holders receive
at maturity is based on the price of underlying common stock. If the common
stock is trading at a price that is at or below the cap, a Fund receives for
each ELKS share an amount equal to the average price of the common stock. If the
common stock is trading at a price that is above the cap, the Fund receives the
cap amount. Accordingly, a Fund is subject to the risk that if the price of the
common stock is above the cap price at the maturity of the ELKS, the Fund will
lose the amount of the difference between the price of the common stock and the
cap. Such a loss could substantially reduce the Fund's initial investment in the
ELKS and any dividends that were paid on the ELKS. An additional risk is that
the issuer may "reopen" the issue of ELKS and issue additional ELKS at a later
time or issue additional debt securities or other securities with terms similar
to those of the ELKS, and such issuances may affect the trading value of the
ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-market yield at maturity, is based
on the price of underlying common stock. If the common stock is trading at a
price that is at or below the purchase price of the LYONs plus accrued original
issue discount, a Fund receives only the lower-than-market yield, assuming the
LYONs are not in default. If the common stock is trading at a price that is
above the purchase price of the LYON's plus accrued original issue discount, the
Fund will receive an amount above the lower-than-market yield on the LYONs,
based on how well the underlying common stock performs. LYONs also present risks
based on payment expectations. If a LYON's issuer redeems the LYONs, the Fund
may have to replace the LYONs with a lower yielding security, resulting in a
decreased return for investors.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
EMERGENCE OF EASTERN EUROPEAN ECONOMIES
In recent years there have been two key issues influencing the investment
environment and economic conditions of Europe: the creation of the single market
and the emergence of Eastern European economies. Both of these factors have
helped European companies by opening up new markets for growth.
In connection with efforts to create a single market, eleven of the fifteen
member countries of the European Union are scheduled to establish fixed
conversion rates between their existing sovereign currencies and a new common
currency, the euro, effective January 1, 1999. The introduction of the euro is
expected to reshape financial markets, banking systems and monetary policies in
Europe and other parts of the world. The participating countries will issue
sovereign debt exclusively in the euro and will redenominate outstanding
sovereign debt. Financial transactions and market information, including share
quotations and company accounts, in participating countries will be denominated
in euros. Monetary policy for participating countries will be uniformly managed
by a new central bank, the European Central Bank (ECB).
The transition to the euro may change the economic environment and behavior
of investors, particularly in European markets. For example, the process of
implementing the euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax
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consequences. The transition to the euro is likely to have a significant impact
on fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
Governments across Europe have also initiated major privatization programs
shifting a greater share of economic activity into the more efficient private
sector. Private companies have sought quotation, following the need to compete
in the capital markets, as much as in the market place for their products and
services. Those companies already quoted have begun to appreciate the value of
their being listed. To achieve a high rating on their equity, companies need to
produce transparent accounts, communicate effectively with their shareholders
and manage their businesses and assets to their shareholders' advantage. The
restructuring, management incentives and rationalization of companies has lead
to lower wage structures and greater flexibility. This has enabled European
companies to match the competitive cost environment of developing economies.
Demand for equity will grow hand in hand with supply; driven by pension fund
reform, growth in life insurance, shifts in European investing from fixed income
to equities and the emergence of European mutual funds. All of these factors
together will improve the quality of the markets in which European equities are
traded.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants are warrants which entitle the holder to receive
from their issuer an amount of cash (generally, for warrants issued in the
United States, in U.S. Dollars) which is calculated pursuant to a predetermined
formula and based on the exchange rate between a specified foreign currency and
the U.S. Dollar as of the exercise date of the warrant. Foreign currency
warrants generally are exercisable upon their issuance and expire as of a
specified date and time. Foreign currency warrants have been issued in
connection with U.S. Dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
Dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. Dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities are debt obligations the principal
on which is payable at maturity in an amount that may vary based on the exchange
rate between the U.S. Dollar and a particular foreign currency at or about that
time. The return on "standard" principal exchange rate linked securities is
enhanced if the foreign currency to which the security is linked appreciates
against the U.S. Dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. Dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. Dollar and adversely impacted by
increases in the value of foreign currency. Interest payments on the securities
are generally made in U.S. Dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.
Performance indexed paper is U.S. Dollar-denominated commercial paper the
yield of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is between the U.S. Dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is
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below, and a potential maximum rate of return that is above, market yields on
U.S. Dollar-denominated commercial paper, with both the minimum and maximum
rates of return on the investment corresponding to the minimum and maximum
values of the spot exchange rate two business days prior to maturity.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. Dollar value of the assets of the Global Equity Fund, Global Equity
Allocation Fund, Global Fixed Income Fund, Asian Growth Fund, Emerging Markets
Fund, Emerging Markets Debt Fund, Latin American Fund, European Equity Fund,
Japanese Equity Fund, International Magnum and Global Franchise Fund and to the
extent they invest in assets denominated in foreign currencies, the Value Fund,
Mid Cap Growth Fund, American Value Fund, Aggressive Equity Fund, Growth and
Income Fund II, Equity Growth Fund, Worldwide High Income Fund and High Yield &
Total Return Fund may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Funds may
incur costs in connection with conversions between various currencies. The Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract (a "forward contract")
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for such trades.
The Funds may enter into forward contracts in several circumstances. When a
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when a Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Fund may desire to "lock-in" the U.S. Dollar price of the security or the U.S.
Dollar equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the purchase
or sale of the amount of foreign currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. Dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Funds anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. A Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate such Fund to deliver an amount of foreign currency
in excess of the value of such Fund's securities or other assets denominated in
that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Company believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Fund will thereby be served. Except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder, the
Company's Custodian will place cash or liquid assets into a segregated account
of a Fund in an amount equal to the value of such Fund's total assets committed
to the consummation of forward contracts. If the value of the securities placed
in the segregated account declines, additional cash or assets will be placed in
the account on a daily basis so that the value of the account will be at least
equal to the amount of such Fund's commitments with respect to such contracts.
The Funds generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. A Fund will only enter into such a forward
contract if it is expected that there will be a liquid market in which to close
out such contract. There can, however, be no assurance that such a liquid market
will exist in which to close a forward contract, in which case the Fund may
suffer a loss.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during
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the period between a Fund entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, such Fund will realize a gain to the extent
that the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, such Fund
would suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
In addition, Funds may cross-hedge currencies by entering into a transaction
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. These Funds may also engage in proxy hedging, which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where two currencies are economically linked. A
Fund's entry into forward contracts, as well as any use of proxy or cross
hedging techniques, will generally require the Fund to hold liquid securities or
cash equal to the Fund's obligations in a segregated account throughout the
duration of the contract.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security or a specific
currency at a specified future time and at a specified price. Futures contracts,
which are standardized as to maturity date and underlying financial instrument,
index or currency, traded in the United States are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a U.S.
Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Unless otherwise limited herein, the Funds may sell indexed financial
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of securities in its portfolio that might
otherwise result. An index futures contract is an agreement to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the beginning and at the end of the contract period. Successful use of
index futures will be subject to the Adviser's ability to predict correctly
movements in the direction of the relevant securities market. No assurance can
be given that the Adviser's judgment in this respect will be correct.
Unless otherwise limited herein, the Funds may sell indexed financial
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of securities in its portfolio that might
otherwise result. If the Adviser believes that a portion of a Fund's assets
should be invested in emerging country securities but such investments have not
been fully made and the Adviser anticipates a significant market advance, the
Fund may purchase index futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of securities that it intends
to purchase. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of such securities.
Futures traders are required to make a good faith margin deposit in cash or
liquid securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be
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acquired by them. Speculators are less inclined to own the underlying securities
with futures contracts that they trade, and use futures contracts with the
expectation of realizing profits from market fluctuations. The Funds intend to
use futures contracts only for hedging purposes.
Regulations of the CFTC applicable to the Funds require generally that all
futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds generally will only sell futures contracts to protect securities
owned against declines in price or purchase contracts to protect against an
increase in the price of securities intended for purchase. As evidence of this
hedging interest, the Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. None of the Funds will enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, none of the Funds will enter into
futures contracts and options on futures contracts to the extent that the
notional value of its outstanding obligations to purchase securities under such
contracts would exceed 20% (50% for the Mid Cap Growth Fund, Value Fund, Equity
Growth Fund, Emerging Markets Debt Fund and Global Equity Fund) of its total
assets. See also, "Investment Limitations" for further restrictions applicable
to the Funds.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
The Funds will minimize the risk that they will be unable to close out a
futures contract by generally entering into futures which are traded on
recognized international or national futures exchanges and for which there
appears to be a liquid secondary market, however, the Funds may enter into
over-the-counter futures transactions to the extent permitted by applicable law.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Adviser does not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, the Fund had invested in the underlying
security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved 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.
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OPTIONS ON FOREIGN CURRENCIES
Unless otherwise limited herein, the Funds may attempt to accomplish
objectives similar to those described above with respect to forward foreign
currency exchange contracts and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives a Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives a Fund the right to purchase a
currency at the exercise price until the expiration of the option.
The Funds noted above may purchase and write options on foreign currencies
in a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the Funds may purchase put options on the foreign
currency. If the value of the currency does decline, the Funds will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on their portfolios which
otherwise would have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Funds may purchase call
options thereon. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Funds derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Funds could sustain
losses on transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such rates.
Funds may write options on foreign currencies for the same purposes. For
example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or other
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or other liquid securities in an amount not less
than the value of the underlying foreign currency in U.S. Dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is designed to provide a hedge against a decline in the U.S. Dollar value of
a security which the portfolio owns or has the right to acquire due to an
adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the Custodian, cash or other liquid securities in an
amount not less than the value of the underlying foreign currency in U.S.
Dollars marked-to-market daily.
Funds may combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a Fund may purchase a U.S.
dollar-denominated security and at the same time enter into a forward contract
to exchange U.S. dollars for the contract's underlying currency at a future
date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, the Fund may be able
to lock in the foreign currency value of the security and adopt a synthetic
position reflecting the credit quality of the U.S. dollar-denominated security.
To the extent required by the rules and regulations of the Securities and
Exchange Commission ("SEC"), the Custodian of the Funds will place cash or other
liquid assets into a segregated account of a Fund in an amount equal to the
value of such Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or liquid assets will be placed
in the account on a daily basis so that the value of the account will be at
least equal to the amount of such Fund's commitments with respect to such
contracts.
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OPTIONS TRANSACTIONS
Unless otherwise limited herein, the Funds may write (i.e., sell) covered
call options which give the purchaser the right to buy the underlying security
covered by the option from the Fund at the stated exercise price. A "covered"
call option means that so long as a Fund is obligated as the writer of the
option, it will own (i) the underlying securities subject to the option, or (ii)
securities convertible or exchangeable without the payment of any consideration
into the securities subject to the option.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods a Fund will
receive less total return and in other periods greater total return from writing
covered call options than it would have received from its underlying securities
had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers and
to close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
A Fund may purchase call options to close out a covered call position or to
protect against an increase in the price of a security it anticipates
purchasing. A Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such counterparty or any guarantor of credit enhancement of the counterparty's
credit to determine the likelihood that the terms of the OTC Options will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by a Fund or sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid unless the Fund has entered into a
special arrangement to dispose of the security, and are subject to the Fund's
limitation on investing in illiquid securities.
Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract or securities. In the opinion of the Adviser, the risk that a
Fund will be unable to close out an options contract will be minimized by only
entering into options transactions for which there appears to be a liquid
secondary market.
COMBINED TRANSACTIONS
Unless otherwise limited herein, the Funds may enter into multiples of the
forwards, futures and options transactions described above, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions, instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of the Fund to do so. A combined
transaction, while part of a single strategy, may contain elements of risk that
are present in each of its component transactions and will be structured in
accordance with applicable Securities and Exchange Commission (the "SEC")
regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
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Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Furthermore, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
GLOBAL INVESTING
Investors should recognize that investing in foreign securities involves
special considerations which are not typically associated with investing in
domestic securities. Since the securities of foreign issuers are frequently
denominated in foreign currencies, and since a Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, a Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of certain Funds permit entering
into forward foreign currency exchange contracts in order to hedge holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
Although the Funds will endeavor to achieve most favorable execution costs
in their portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of a
Fund's foreign securities will be somewhat greater than the expenses for the
custodian arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Additional risks of
foreign investing are set forth in the appropriate Prospectuses.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price they are being carried on a Fund's
books. This lack of a liquid secondary market may have an adverse impact on the
value of such securities and a Fund's ability to dispose of particular
securities when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for securities also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
INVESTMENT COMPANY SECURITIES
The 1940 Act generally prohibits a Fund from acquiring more than 3% of the
outstanding voting shares of an investment company and limits such investments
to no more than 5% of the Fund's total assets in any one investment company and
no more than 10% in any combination of investment companies. The 1940 Act also
prohibits a Fund from acquiring in the aggregate more than 10% of the
outstanding voting shares of any registered closed-end investment company. A
Fund may not purchase shares of any affiliated investment company except as
permitted by the 1940 Act, an exemption from the 1940 Act or other applicable
law.
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MORTGAGE-RELATED DEBT SECURITIES
Mortgage-related debt securities represent ownership interests in individual
pools of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. Each mortgagor's
monthly payment to his lending institution on his residential mortgage is
"passed-through" to investors. Mortgage pools consist of whole mortgage loans or
participations in loans. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools.
Lending institutions which originate mortgages for the pools are subject to
certain standards, including credit and underwriting criteria for individual
mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower than the
interest rates paid on the mortgages included in the underlying pool, but only
by the amount of the fees paid to the mortgage pooler, issuer, and/or guarantor
of payment of the securities for the guarantee of the services of passing
through monthly payments to investors. Actual yield may vary from the coupon
rate, however, if mortgage-related securities are purchased at a premium or
discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
The International Magnum Fund seeks to achieve its objective by investing
primarily in equity securities of non-U.S. issuers in accordance with the EAFE
country (defined below) weightings determined by the Adviser. After establishing
regional allocation strategies, the Adviser then selects equity securities among
issuers of a region. The Fund invests in countries (each an "EAFE country")
comprising the Morgan Stanley Capital International EAFE (Europe, Australia and
the Far East) Index (the "EAFE Index") and any countries which have been
publicly announced will be added to the EAFE Index.
The EAFE Index is one of seven International Indices, twenty National
Indices and thirty-eight Industry Indices making up the Morgan Stanley Capital
International Indices. The Morgan Stanley Capital International EAFE Index is
based on the share prices of 1,066 companies listed on the stock exchanges of
Europe, Australia, New Zealand and the Far East. "Europe" includes Austria,
Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom. "Far East" includes
Japan, Hong Kong and Singapore/Malaysia.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in equity securities of U.S. and
non-U.S. issuers in accordance with country weightings determined by the Adviser
and with stock selection within each country designed to replicate a broad
market index. The Adviser determines country allocations for the Fund on an
ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The Fund will invest in the United States and
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International World Index (the "World Index"). The World Index is one of
the indices making up the Morgan Stanley Capital International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/ Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks. See
the Prospectuses for a discussion of the risks of foreign investments. These
institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and record keeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Funds will
invest in U.S. Dollar-denominated obligations of domestic branches of foreign
banks and foreign branches of domestic banks only when the Adviser believes that
the risks associated with such investment are minimal and that all applicable
quality standards have been satisfied.
PORTFOLIO TURNOVER
The portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the Fund for the year, excluding securities with maturities of one year or less.
The rate of portfolio turnover will not be a limiting factor when a Fund deems
it appropriate to purchase or sell securities for the portfolio. High rates of
portfolio turnover necessarily result in correspondingly heavier brokerage and
portfolio trading costs which are paid by the Funds. In addition to portfolio
trading costs, higher rates of portfolio turnover may result in the realization
of capital gains. See "Taxes" in the Prospectus for more information on
taxation.
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REPURCHASE AGREEMENTS
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository.
SECURITIES LENDING
Each Fund may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act, or the Rules and Regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or liquid securities having a value at
all times not less than 100% of the value of the securities loaned, including
accrued interest, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund receive reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Directors.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
STAND-BY COMMITMENTS
A Fund may enter into stand-by commitments with respect to obligations
issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase,
at a Fund's option, a specified Municipal Obligation at its amortized cost value
to the Fund plus accrued interest, if any. Stand-by commitments may be
exercisable by a Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers, banks
and broker-dealers which, in the Adviser's opinion, present minimal credit risks
and otherwise satisfy applicable quality standards. The Funds' reliance upon the
credit of these dealers, banks and broker-dealers will be secured by the value
of the underlying Municipal Obligations that are subject to the commitment.
The Funds will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their right thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where a Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by that Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
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STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS 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 entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS 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 prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
SWAP CONTRACTS
The Non-Money Market Funds may enter into Swap Contracts. A swap is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. The payment streams are calculated by reference
to a specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices, total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Fund may agree to swap the return generated by a fixed-income index for the
return generated by a second fixed-income index. The currency swaps in which a
Fund may enter will generally involve an agreement to pay interest streams in
one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
The swaps in which the noted Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities, to avoid any potential leveraging of the Fund. To the extent
that these swaps, caps, floors, and collars are entered into for hedging
purposes, the Adviser believes such obligations do not constitute "senior
securities" under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Funds may enter into OTC
derivatives transactions (swaps, caps, floors, puts, etc., but excluding foreign
exchange contracts) with counterparties that are approved by the Adviser in
accordance with guidelines established by the Board of Directors. These
guidelines provide for a minimum credit rating for each counterparty and various
credit enhancement techniques (for example, collateralization of amounts due
from counterparties) to limit exposure to counterparties with ratings below AA.
The use of 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 market
values, interest rates, and currency exchange rates, the investment performance
of the portfolio would be less favorable than it would have been if this
investment technique were not used.
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U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments held by each Money Market Fund may have
maturities of more than 397 days, provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding
397 days, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
which may extend up to 397 days. In determining the weighted average maturity of
a Fund and whether a variable rate demand instrument has a remaining maturity of
397 days or less, each instrument will be deemed by the Fund to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand. In determining whether an unrated variable rate demand
instrument is of comparable quality at the time of purchase to instruments rated
"high quality," the Adviser will follow guidelines adopted by the Company's
Board of Directors.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Delivery of and payment for these securities may take as long as a month or
more after the date of the purchase commitment but will take place no more than
120 days after the trade date. Each Fund will maintain with the appropriate
Custodian a separate account with a segregated portfolio of cash or liquid
securities in an amount at least equal to these commitments. It is possible that
the market value at the time of settlement would be higher or lower than the
purchase price if the general level of interest rates has changed.
ZERO COUPON BONDS
Zero coupon bonds is a term used to describe notes and bonds which have been
stripped of their unmatured interest coupons, or the coupons themselves, and
also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names, such
as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts
("TRs"), Separate Trading of Registered Interest and Principal of Securities
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
FEDERAL INCOME TAX
The following is only a summary of certain additional federal income tax
considerations generally affecting the Company and its shareholders that are not
described in the Company's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Company
or its shareholders, and the discussion here and in the Company's prospectuses
are not intended as tax advice or as a substitute for careful tax planning.
Each Fund is generally treated as a separate corporation for federal income
tax purposes, and thus the provisions of the Code generally will be applied to
each Fund separately, rather than to the Company as a whole. Each Fund has
elected and qualified, and intends to continue to qualify to be treated for each
taxable year, as a regulated investment company ("RIC") under subchapter M of
the Code.
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The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Legislation and administrative changes or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
In order to qualify for the special tax treatment afforded to RICs under
Subchapter M of the Code, each Fund must, among other things, (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, gains from options, futures and forward
contracts (the "90% Gross Income Test") and (b) diversify its holdings so that,
at the end of each fiscal quarter of the Fund's taxable year, (i) at least 50%
of the market value of the Fund's total assets is represented by cash, United
States Government securities, securities of other RICs, and other securities and
cash items, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer or
two or more issuers which the Fund controls and which are engaged in the same,
similar, or related trades or businesses (other than U.S. Government securities
or the securities of other RICs). For purposes of the 90% Gross Income Test
described above, foreign currency gains may be excluded by regulation from
income that qualifies under the 90% Gross Income Test.
In addition to the requirements described above, in order to qualify as a
RIC, a Fund must distribute at least 90% of its net investment income (which
generally includes dividends, taxable interest, and net short-term capital gains
less operating expenses) to shareholders. If a Fund meets all of the
requirements for treatment as a RIC, it will not be subject to federal income
tax on any of its net investment income or net capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses) that it
distributes to shareholders.
If a Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such case, distributions (including capital gain
dividends, which are distributions of net capital gains) will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits, and such distributions generally will be eligible for the corporate
dividends received deduction. To qualify again as a RIC in a subsequent year,
the Fund may be required to pay an interest charge on 50% of its earnings and
profits attributable to non-RIC years and would be required to distribute such
earnings and profits to its shareholders (less any interest charge). In
addition, if a Fund failed to qualify as a RIC for its first taxable year or, if
immediately after qualifying as a RIC for any taxable year, it failed to qualify
for a period greater than one taxable year, the Fund would be required to
recognize any 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 RIC in a subsequent year.
Each Fund will decide whether to distribute or to retain for reinvestment
all or part of any net capital gains in any year. If any such gains are
retained, the Fund will pay federal income tax thereon, and, if the Fund makes
the appropriate tax election, the shareholders will include their proportionate
shares of such undistributed gains in their income. Shareholders subject to tax
will be entitled (i) to claim their proportionate shares of the tax paid by the
Fund as a credit against their federal income tax liability and (ii) to increase
their tax basis in their shares by an amount equal to the difference between the
amount of includable gain and their proportionate shares of the tax paid by the
Fund. If a Fund decides to retain any net capital gains, it will designate such
retained amounts in a notice to its shareholders.
A gain or loss recognized by a shareholder on the sale or exchange of shares
of a Fund held as a capital asset will be capital gain or loss. For a summary of
the rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates" below. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced within the 61-day
period beginning 30 days before and ending 30 days after the disposition of the
original shares. Any loss recognized by a shareholder on the disposition of
shares held 6 months or less is treated as a long-term capital loss to the
extent of any capital gain dividends received by the shareholder with respect to
such shares or any inclusion of undistributed capital gain with respect to such
shares.
Each Fund will generally be subject to a nondeductible 4% federal excise tax
to the extent it fails to distribute by the end of any calendar year at least an
amount equal to the sum of (i) 98% of its ordinary income (not including
tax-exempt income), (ii) 98% of its capital gain net income (the excess of short
and long-term capital gains over short and long-term capital losses) for the
one-year period ending on October 31st of that year and (iii) certain other
amounts. 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, a Fund
will be treated as having been distributed.
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain dividends and redemptions) paid to
shareholders who have not certified on the Account Registration Form or on a
separate form supplied by the Fund, that the Social Security or Taxpayer
Identification Number provided is correct and that the shareholder is exempt
from backup withholding or is not currently subject to backup withholding.
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CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is 35%. A special 28% tax rate may apply to
a portion of the capital gain dividends paid by a Fund with respect to its
taxable year ended June 30, 1998.
ADDITIONAL CONSIDERATIONS FOR THE TAX-FREE MONEY MARKET FUND
In order for the Tax-Free Money Market Fund to pay exempt-interest dividends
during any taxable year, at the close of each quarter of its taxable year at
least 50% of the value of the Fund's total assets must consist of certain
tax-exempt obligations. Exempt-interest dividends distributed to shareholders
are not included in the shareholder's gross income for regular federal income
tax purposes. Exempt-interest dividends may, however, be subject to the
alternative minimum tax (the "AMT") imposed by Section 55 of the Code and, in
the case of corporate taxpayers, the environmental tax (the "Environmental Tax")
imposed by Section 59A of the Code. The AMT and the Environmental Tax may be
imposed in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986 will generally be
an item of tax preference (and therefore potentially subject to the AMT and/or
the Environmental Tax) for both corporate and non-corporate taxpayers. Second,
in the case of exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the AMT and the Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. A portion of the Social Security
benefits or railroad retirement benefits received by an individual during any
taxable year may be included in the gross income of such individual depending
upon the individual's "modified adjusted gross income" (which includes
exempt-interest dividends).
The Tax-Free Money Market Fund may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to such users within the meaning of the
applicable Treasury regulations) of facilities financed by industrial
development or private activity bonds. A "substantial user" is generally defined
to include certain persons who regularly use such a facility in their trade or
business. Such entities or persons should consult their tax advisors before
purchasing shares of this Fund.
Issuers of bonds purchased by the Tax-Free Money Market Fund (or the
beneficiary of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such bonds
may become subject to federal income taxation retroactively to the date of
issuance thereof if such representations are determined to have been inaccurate
or if the issuer of such bonds (or the beneficiary of such bonds) fails to
comply with such covenants.
Distributions of net investment income received by the Tax-Free Money Market
Fund from investments in debt securities (other than interest on tax-exempt
Municipal Obligations) and any net short-term capital gains distributed by the
Fund will be taxable to shareholders as ordinary income and will not be eligible
for the dividends received deduction for corporate shareholders. Although the
Tax-Free Money Market Fund generally does not expect to receive net investment
income other than Tax-Exempt Interest, up to 20% of the net assets of the Fund
may be invested in Municipal Obligations that do not bear Tax-Exempt Interest,
and any taxable income recognized by the Fund will be distributed and taxed to
its shareholders.
PASSIVE FOREIGN INVESTMENT COMPANIES
A Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (i) at least 75% of its gross income is passive income or (ii)
an average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a RIC that holds stock of a
PFIC will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the RIC distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the RIC's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If a Fund invests in
a PFIC and elects to treat the PFIC as a "qualified electing fund," then in lieu
of the foregoing tax and interest obligation, the Fund would be required to
include in income each year its pro rata share of the qualified electing fund's
annual ordinary earnings and net capital gain, which most likely would have to
be distributed to satisfy the 90% distribution requirement and the distribution
requirement for avoiding income and excise taxes. In most instances it will be
very difficult to make this election due to certain requirements imposed with
respect to the election.
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As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, a Fund that invests in PFIC stock may make an
election to annually mark-to-market such PFIC stock (a "PFIC Mark-to-Market
Election"). "Marking-to-market," in this context, means recognizing as ordinary
income or loss each year an amount equal to the difference between the Fund's
adjusted tax basis in such PFIC stock and its fair market value. Losses will be
allowed only to the extent of net mark-to-market gain previously included by the
Fund pursuant to the election for prior taxable years. The Fund may be required
to include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service consents to
revocation of the election. By making the PFIC Mark-to-Market Election, the Fund
could ameliorate the adverse tax consequences arising from its ownership of PFIC
stock, but in any particular year may be required to recognize income in excess
of the distributions it receives from the PFIC and proceeds from the disposition
of PFIC stock.
FOREIGN INCOME TAXES
It is expected that each Fund will be subject to foreign withholding taxes
with respect to its dividend and interest income from foreign countries, if any,
and a Fund may be subject to foreign income or other taxes with respect to other
income. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% in value of a Fund's total
assets at the close of the taxable year consists of stock or securities of
foreign corporations and the Fund satisfies certain holding period requirements
with respect to such stock or securities, the Fund may elect to treat certain
foreign income taxes imposed on it under U.S. federal income tax law as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders and will notify shareholders
in writing each year if it makes an election and of the amount of foreign income
taxes, if any, to be treated as paid by the shareholders. If a Fund makes the
election, shareholders will be required to include in income their proportionate
shares of the amount of foreign income taxes treated as imposed on the Fund and
will be entitled to claim either a credit (subject to the limitations discussed
below) or, if they itemize deductions, a deduction for their shares of the
foreign income taxes in computing their federal income tax liability. No
deductions will be allowed in computing alternative minimum tax liability.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by a Fund from its foreign source
income will be treated as foreign source income. A Fund's gains from the sale of
securities will generally be treated as derived from U.S. sources and certain
foreign currency gains and losses likewise will be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
CERTAIN INVESTMENT PRACTICES
Some of a Fund's investment practices, including those involving certain
risk management transactions and foreign currency transactions, may be subject
to special provisions of the Code that, among other things, defer the use of
certain losses of the Fund and affect the holding period of securities held by
the Fund and the character of 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 the amounts necessary to
satisfy the distribution requirements for avoiding federal income and excise
taxes. Thus, these provisions could affect the amount, timing and character of
distributions to shareholders. Each Fund engaging in such investment practices
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
RIC.
FEDERAL INCOME TAX TREATMENT OF FORWARD CURRENCY
CONTRACTS AND EXCHANGE RATE CONTRACTS
Except for certain hedging transactions, each Fund is required for federal
income tax purposes to recognize as gain or loss for each taxable year its net
unrealized gains and losses on certain forward currency and futures contracts as
of the end of each taxable year, as well as those actually realized during the
year. In most cases, any such gain or loss recognized with respect to a
regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Forward currency futures contracts which are intended to
hedge against a change in the value of securities held by a Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition. Any net gain realized from the closing
out of futures contracts will generally be qualifying income for purposes of the
90% Gross Income Test.
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Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or loss.
Similarly, gains or losses on disposition of debt securities denominated in a
foreign currency attributable to fluctuations in the value of the foreign
currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses
increase or decrease the amount of a Fund's net investment income, if any,
available to be distributed to its shareholders as ordinary income.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, foreign corporation, or foreign
partnership (a "Foreign Shareholder") depends on whether the income from the
Company is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Company is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of ordinary
income will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Furthermore, Foreign
Shareholders will generally be exempt from United States federal income tax on
gains realized on the sale of shares of the Company, distributions of net
long-term capital gains, and amounts retained by the Company which are
designated as undistributed capital gains.
If the income from the Company is effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, then distributions of net
investment income and net capital gains, and any gains realized upon the sale of
shares of the Company, will be subject to U.S. federal income tax at the rates
applicable to United States citizens and residents or domestic corporations.
The Company may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the benefits
of an applicable tax treaty may differ from those described here. Foreign
Shareholders are strongly urged to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Company.
PURCHASE OF SHARES
For Class A shares of the Non-Money Funds, the purchase price of shares is
based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Funds an order received prior to the regular close of the New York Stock
Exchange (the "NYSE") (currently, 4:00 p.m., Eastern Time) will be executed at
the price computed on the date of receipt; and an order received after the
regular close of the NYSE will be executed at the price computed on the next day
the NYSE is open. The purchase price of shares of the Non-Money Funds is based
on such price as further described in the Prospectuses under "Purchase of
Shares."
The purchase price of shares of the Money Market Funds is the net asset
value per share next determined after Federal Funds are available to such Fund.
A purchase of a Money Market Fund's shares by check is credited to the
shareholder's account at the price next determined after receipt of Federal
Funds on the day of receipt and will begin receiving dividends the following
day.
Shares of the Company may be purchased on any day the NYSE is open, except
that shares of the Money Market Funds may be purchased on any day when both the
NYSE and the Federal Reserve Banks are open. The NYSE is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when any of these holidays falls on a Saturday or Sunday, respectively.
Federal Reserve Banks are closed on Columbus Day and Veterans Day, in addition
to such NYSE holidays.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Company, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Fund's shares.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the SEC may permit. Additionally, if the Board of Directors determines that
payment wholly or partly in cash would be detrimental to the best interests of
the remaining
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shareholders of the Fund, the Company may pay the redemption proceeds in whole
or in part by a distribution-in-kind of readily marketable securities held by
the Funds in lieu of cash in conformity with applicable rules of the SEC.
Shareholders may incur brokerage charges upon the sale of portfolio securities
so received in payment of redemptions.
Any redemption may be more or less than the shareholder's cost depending on,
among other factors, the market value of the securities held by the Fund(s).
To protect your account and the Company from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Company to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and (2)
share transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Company are also
being redeemed, on the letter or stock power.
Redemption of shares held in broker street name may not be accomplished by
mail or telephone as described above. Shares held in broker street name may be
redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Non-Money Funds
("Qualified Purchaser"), the front-end sales charge will be waived and a
contingent deferred sales charge ("CDSC -- Class A") of 1.00% is imposed in the
event of certain redemptions within one year of the purchase. If a CDSC -- Class
A is imposed upon redemption, the amount of the CDSC -- Class A will be equal to
the lesser of 1.00% of the value of the shares at the time of purchase or 1.00%
of the value of the shares at the time of redemption.
The CDSC -- Class A will be imposed only if a Qualified Purchaser redeems an
amount which caused the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one year period prior to the redemption. The CDSC --
Class A will be waived in connection with redemptions by certain Qualified
Purchasers (e.g., in retirement plans qualified under Section 401(a) of the Code
and deferred compensation plans under Section 457 of the Code) required to
obtain funds to pay distributions to beneficiaries pursuant to the terms of the
plans. Such payments include, but are not limited to, death, disability,
retirement or separation from service. No CDSC -- Class A will be imposed on
exchanges between funds. For purposes of the CDSC -- Class A, when shares of one
fund are exchanged for shares of another fund, the purchase date for the shares
of the fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC -- Class A rather than a front-end load sales charge. In determining
whether a CDSC -- Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of the Participating Funds described in
the Prospectus.
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," redemptions of
Class B shares and Class C shares of the Non-Money Funds 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 Death or Disability
The Non-Money Funds will waive the CDSC -- Class B and C on redemptions
following the death or disability of a Class B shareholder and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the 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 Company 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.
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In cases of death or disability, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Company will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more of the Participating
Funds; in such event, as described below, the Non-Money 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 Company 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 a Fund. Under the Plan,
a dollar amount of a participating shareholder's investment in a Fund will be
redeemed systematically by such 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 may be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts That Do Not Have the
Required Minimum Balance
The Funds reserve 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 Funds 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 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.
INVESTMENT LIMITATIONS
Each current Fund of the Company has adopted certain investment policies
which are either fundamental investment limitations or non-fundamental
investment limitations. Fundamental investment limitations may not be changed
without the approval of the lesser of: (1) at least 67% of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of the Fund.
Non-fundamental investment limitations may be changed by the Board of Directors
of the Company.
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For the purpose of adopting fundamental investment limitations the current
Funds have been divided into three separate groups, which limitations apply only
to the Funds that form a part of that group. The groups are comprised as
follows:
Category I Funds: Global Fixed Income Fund, Worldwide High
Income Fund, High Yield & Total Return
Fund, American Value Fund, Aggressive
Equity Fund, U.S. Real Estate Fund,
Global Equity Allocation Fund, Asian
Growth Fund, Emerging Markets Fund,
Latin American Fund, International
Magnum Fund, Japanese Equity Fund,
Growth and Income Fund II and European
Equity Fund.
Category II Funds: Equity Growth Fund, Global Equity Fund,
Emerging Markets Debt Fund, Mid Cap
Growth Fund, Value Fund and Global
Franchise Fund.
Money Market Funds: Money Market Fund, Tax-Free Money Market
Fund and Government Obligations Money
Market Fund.
CATEGORY I FUNDS
The following are fundamental investment limitations with respect to the
Category I Funds. No Category I Fund will:
(1) invest in commodities, except that each of the Emerging Markets Fund,
Latin American Fund, European Equity Fund, American Value Fund, Aggressive
Equity Fund, Growth and Income Fund II and Worldwide High Income Fund may invest
in futures contracts and options to the extent that not more than 5% of its
total assets are required as deposits to secure obligations under futures
contracts and not more than 20% of its total assets are invested in futures
contracts and options at any time;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate, and except that the U.S. Real Estate Fund may invest in real estate
limited partnership interests, but may not invest in such interests that are not
publicly traded;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(6) except with respect to the Latin American Fund and U.S. Real Estate
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Fund's total assets would be
invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) purchase on margin or sell short except as specified above in (1) and
except that the Emerging Markets Fund, Latin American Fund, European Equity
Fund, Aggressive Equity Fund and Worldwide High Income Fund may enter into short
sales in accordance with its investment objective and policies;
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(10) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 10% of the Fund's
total assets valued at the lower of market or cost and a Fund may not purchase
additional securities when borrowings exceed 5% of total assets, except that the
Worldwide High Income Fund, Latin American Fund and Growth and Income Fund II
may enter into reverse repurchase agreements in accordance with its investment
objective and policies and except that each of the Latin American Fund,
Aggressive Equity Fund and Worldwide High Income Fund may borrow amounts up to
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing;
(11) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except that each of the Latin
American, Aggressive Equity and Worldwide High Income Funds may pledge, mortgage
or hypothecate its assets to secure borrowings in amounts up to 33 1/3% of its
assets (including the amount borrowed);
(12) invest more than an aggregate of 15% of the total assets of the Fund,
determined at the time of investment, in illiquid assets, including repurchase
agreements having maturities of more than seven days or invest in fixed time
deposits with a duration of from two business days to seven calendar days if
more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest (i) more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale, except that the High Yield & Total Return Fund may invest up to 20% of
its total assets in 144A Securities (as defined in the High Yield & Total Return
Fund's Prospectus), and (ii) in fixed time deposits with a duration of over
seven calendar days;
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(13) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(14) issue senior securities;
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;
(16) except for the Global Fixed Income Fund, Emerging Markets Fund,
International Magnum Fund, Latin American Fund, Aggressive Equity Fund and U.S.
Real Estate Fund, purchase more than 10% of any class of the outstanding
securities of any issuer; and
(17) except for the Global Fixed Income Fund, Emerging Markets Fund,
International Magnum Fund, Latin American Fund, U.S. Real Estate Fund and
Worldwide High Income Fund, purchase securities of an issuer (except obligations
of the U.S. Government and its instrumentalities) if as the result, with respect
to 75% of its total assets, more than 5% of the Fund's total assets, at market
value, would be invested in the securities of such issuer.
The following are non-fundamental investment limitations with respect to the
Category I Funds. As a matter of non-fundamental policy, no Category I Fund
will:
(1) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange;
(2) invest in oil, gas or other mineral leases; and invest up to 25% of its
total assets in privately placed securities, provided that it may not invest
more than 15% of its total assets in illiquid securities, including securities
for which there is no readily available market, and provided further that it
will not invest more than 10% of its total assets in securities which are
restricted from sale to the public without registration under the Securities Act
of 1933, as amended (the "1933 Act"), except securities that are not registered
under the 1933 Act but that can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act.
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future funds of the Company may adopt different
limitations.
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities;
(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with
their respective investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in non-fundamental investment
limitation (9) below, (ii) by lending their portfolio securities, and (iii) by
lending portfolio assets to other Funds, banks, brokers, dealers and other
financial institutions, so long as such loans are not inconsistent with the 1940
Act, the rules, regulations, interpretations or orders of the SEC and its staff
thereunder;
(4) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase a security if, as a result, the Fund would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer;
(5) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(6) issue any class of senior security or sell any senior security of which
it is the issuer, except that each Fund may borrow money as a temporary measure
for extraordinary or emergency purposes, provided that such borrowings do not
exceed 33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings) and except that the Emerging Markets Debt
Fund may borrow from banks in an amount not in excess of 33 1/3% of its total
assets (including the amount borrowed) less liabilities in accordance with its
investment objective and policies. The term "senior security" shall not include
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any temporary borrowings that do not exceed 5% of the value of a Fund's total
assets at the time the Fund makes such temporary borrowing. Notwithstanding the
foregoing limitations on issuing or selling senior securities and borrowing, a
Fund may engage in investment strategies that obligate it either to purchase
securities or segregate assets, or enter into reverse repurchase agreements,
provided that it will segregate assets to cover its obligations pursuant to such
transactions in accordance with applicable rules, orders, or interpretations of
the SEC or its staff. This investment limitation shall not preclude a Fund from
issuing multiple classes of shares in reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent that a
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities);
(8) Acquire any securities of companies within one industry, if as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, when any
such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures;
(2) sell short unless the Fund (i) owns the securities sold short, (ii) by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, or (ii) maintains in a
segregated account on the books of the Fund's custodian an amount that, when
combined with the amount of collateral deposited with the broker in connection
with the short sale, equals the current market value of the security sold short
or such other amount as the SEC or its staff may permit by rule, regulation,
order, or interpretation, except that the Emerging Markets Debt Fund may from
time to time sell securities short without limitation but consistent with
applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short;
(3) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities;
(4) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets;
(5) pledge, mortgage or hypothecate assets in an amount greater than 10% of
its total assets in the case of the Equity Growth, Global Equity and Emerging
Markets Debt Funds or 50% of its total assets in the case of the Mid Cap Growth
and Value Funds, provided that each Fund may segregate assets without limit in
order to comply with the requirements of Section 18(f) of the 1940 Act and
applicable rules, regulations or interpretations of the SEC and its staff;
(6) invest more than an aggregate of 15% of the net assets of the Fund,
determined at the time of investment, in illiquid securities provided that this
limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined to
be liquid securities under guidelines or procedures adopted by the Board of
Directors;
(7) invest for the purpose of exercising control over management of any
company;
(8) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act; and
(9) in the case of the Equity Growth, Global Equity, and Emerging Markets
Debt Funds, make loans as described in fundamental investment limitations 3(ii)
and 3(iii), above, in an amount exceeding 33 1/3% of its total assets.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
MONEY MARKET FUNDS
The following are fundamental investment limitations with respect to the
Money Market Funds. No Money Market Fund will:
(1) invest in commodities;
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<PAGE>
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation, except that the Tax-Free Money Market Fund may not invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operations;
(6) acquire any securities of companies within one industry if, as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or (in the
case of the Money Market Fund) instruments issued by U.S. banks or their
domestic branches;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) issue senior securities or borrow money, except for borrowing money
from banks for temporary purposes or (with respect to the Money Market Fund and
Government Obligations Fund) for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Fund's total assets at the time
of such borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Fund; or mortgage, pledge, hypothecate
or in any manner transfer as security for indebtedness any securities owned or
held by the Fund, any assets except as may be necessary in connection with
permitted borrowings and then, in amounts not in excess of 10% of the value of
the Fund's total assets at the time of the borrowing; or purchase portfolio
securities while borrowings in excess of 5% of the Fund's net assets are
outstanding. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Fund's securities by enabling the Fund to
meet redemption requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient.);
(9) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(10) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(11) with respect to the Money Market Fund, invest in other investment
companies except to the extent permitted by the 1940 Act, provided that the Fund
may invest only in investment companies that are unaffiliated with the Fund; and
with respect to the Tax-Free Money Market Fund and Government Obligations Money
Market Fund, invest more than 10% of the value of the Fund's assets in other
investment companies that are unaffiliated with the Fund and then no more than
5% of the Fund's assets may be invested in any one money market fund;
(12) with respect to the Money Market Fund, purchase any securities other
than Money-Market Instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Fund's assets and may make time
deposits;
(13) with respect to the Tax-Free Money Market Fund, under normal market
conditions invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest");
(14) with respect to the Government Obligations Money Market Fund, purchase
securities other than U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. There is no limit on the
amount of the Fund's assets which may be invested in the securities of any one
issuer of obligations that the Fund is permitted to purchase;
(15) purchase the securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or
securities subject to unconditional demand features issued by a non-controlled
person) if immediately after and as a result at the time of purchase more than
5% of the Fund's total assets would be invested in the securities of such
issuer; except that, under applicable regulations, the Fund may invest more than
5% of its total assets in any one issuer for up to three business days;
(16) enter into repurchase agreements with more than seven days maturity if,
as a result, more than 10% of the value of its net assets would be invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid; and
25
<PAGE>
(17) make loans, except that a Fund may purchase or hold debt obligations in
accordance with its investment objectives, policies and limitations and, with
respect to the Money Market and Government Obligations Money Market Funds, may
enter into repurchase agreements for securities, and may lend portfolio
securities against collateral, consisting of cash or securities which are
consistent with the Fund's permitted investments, which is equal at all times to
at least 100% of the value of the securities loaned. There is no investment
restriction on the amount of securities that may be loaned.
With respect to limitation (6) above concerning industry concentration, the
Money Market Fund will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
The following are non-fundamental investment limitations with respect to the
Money Market Funds. As a matter of non-fundamental policy, no Money Market Fund
will:
(1) purchase puts, calls, straddles, spreads and any combination thereof if
by reason thereof the value of its aggregate investment in such derivative
securities will exceed 5% of its respective total assets;
(2) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange; and
(3) invest in oil, gas or other mineral leases.
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future funds of the Company may adopt different
limitations.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less, may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate;
(c) an instrument with a variable rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The tables below list the Directors and officers of the Company and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen"), Van Kampen Investment Advisory Corp.
("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van
Kampen Funds Inc., the distributor of the Fund's shares (the "Distributor"), Van
Kampen Management Inc., Van Kampen Advisors Corp., Van Kampen Insurance Agency
of Illinois Inc., Van Kampen Insurance Agency of Texas Inc., Van Kampen System
Inc., Van Kampen Recordkeeping Services Inc., American Capital Contractual
Services Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc., the Fund's transfer agent ("Investor Services").
Advisory Corp. and Asset Management sometimes are referred to herein
collectively as the "Advisers". For purposes hereof, the term "Fund Complex"
includes each of the open-end investment companies advised by the Advisers
(excluding the Van Kampen Exchange Fund).
26
<PAGE>
DIRECTORS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATIONS OR EMPLOYMENT IN PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
J. Miles Branagan ................................ Private investor. Co-founder, and prior to August 1996, Chairman, Chief
1632 Morning Mountain Road Executive Officer and President, MDT Corporation (now known as
Raleigh, NC 27614 Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company
Date of Birth: 07/14/32 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 Management Group, a
Two World Trade Center division of Morgan Stanley Dean Witter & Co. Mr. DeMartini is a Director of
66th Floor InterCapital Funds, Dean Witter Distributors, Inc., and Dean Witter Trust
New York, NY 10048 Company. Trustee of the TCW/DW Funds. Director of the National Healthcare
Date of Birth: 10/12/52 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 ............................... Managing Partner of Heidrick & Stuggles, an executive search firm. Prior to
Sears Tower 1997, Partner, Ray & Berndtson, Inc., an executive recruiting and
233 South Wacker Drive management consulting firm. Formerly, Executive Vice President of ABN AMRO,
Suite 7000 N.A., a Dutch bank holding company. Prior to 1992, Executive Vice President
Chicago, IL 60606 of La Salle National Bank. Trustee on the University of Chicago Hospitals
Date of Birth: 06/03/48 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 United States.
11 DuPont Circle, N.W. Formerly, advisor to the Dennis Trading Group Inc. Prior to 1992, President
Washington, D.C. 20036 and Chief Executive Officer, Director and Member of the Investment
Date of Birth: 02/29/52 Committee of the Joyce Foundation, a private foundation. Trustee/Director
of each of the funds in the Fund Complex.
Jack E. Nelson ................................... President, Nelson Investment Planning Services, Inc., a financial planning
423 Country Club Drive company and registered investment adviser. President, Nelson Ivest
Winter Park, FL 32789 Brokerage Services Inc., a member of the National Association of Securities
Date of Birth: 02/13/36 Dealers, Inc. ("NASD") and Securities Investors Protection Corp. ("SIPC").
Trustee/Director of each of the funds in the Fund Complex.
Don G. Powell* ................................... Chairman and a Director of Van Kampen. Chairman and a Director of the
2800 Post Oak Blvd. Advisers and the Distributor. Chairman and a Director of Investor Services.
Houston, TX 77056 Director or officer of certain other subsidiaries of Van Kampen. Chairman
Date of Birth: 10/19/39 of the Board of Governors and the Executive Committee of the Investment
Company Institute. Prior to July of 1998, Director and Chairman of VK/AC
Holding, Inc. Prior to November 1996, President, Chief Executive Officer
and a Director of VK/AC Holding, Inc. Trustee/Director of each of the funds
in the Fund Complex and Trustee of other funds advised by the Advisers or
Van Kampen Management Inc.
Phillip B. Rooney ................................ Vice Chairman and Director of The ServiceMaster Company, a business and
One ServiceMaster Way consumer services company. Director of Illinois Tool Works, Inc., a
Downers Grove, IL 60515 manufacturing company; the Urban Shopping Centers Inc., a retail mall
Date of Birth: 07/08/44 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.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATIONS OR EMPLOYMENT IN PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fernando Sisto ................................... Professor Emeritus and, prior to 1995, Dean of the Graduate School, Stevens
155 Hickory Lane Institute of Technology. Director, Dynalysis of Princeton, a firm engaged
Closter, NJ 07624 in engineering research. Trustee/Director of each of the funds in the Fund
Date of Birth: 08/02/24 Complex.
Wayne W. Whalen* ................................. Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom (Illinois),
333 West Wacker Drive legal counsel to the funds in the Fund Complex, and other open-end and
Chicago, IL 60606 closed-end funds advised by the Advisers or Van Kampen Management Inc.
Date of Birth: 08/22/39 Trustee/Director of each of the funds in the Fund Complex, and
Trustee/Managing Partner of other open-end and closed-end funds advised by
the Advisers or Van Kampen Management Inc.
</TABLE>
- --------------
* Such director is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of the Funds
by reason of his firm currently acting as legal counsel to the Funds.
Messrs. DeMartini and Powell are interested persons of the Funds and the
Advisers by reason of their positions with Morgan Stanley Dean Witter &
Co. or its affiliates.
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell
and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL 60181. Unless
otherwise indicated, the Fund's other officers are located at 2800 Post Oak
Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND
OFFICES WITH THE COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Dennis J. McDonnell .............................. Executive Vice President and a Director of Van Kampen. President, Chief
Date of Birth: 05/20/42, Operating Officer and a Director of the Advisers, Van Kampen Advisors Inc.,
President and Van Kampen Management Inc. Prior to July of 1998, Director and
Executive Vice President of VK/AC Holding, Inc. Prior to April of 1998,
President and a Director of Van Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Mr. McDonnell 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 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/Managing General Partner of other investment
companies advised by the Advisers or their affiliates.
Peter W. Hegel ................................... Executive Vice President of the Advisers, Van Kampen Management Inc. and
Date of Birth: 06/25/56, Van Kampen Advisors Inc. Prior to July of 1996, Mr. Hegel was a Director of
Vice President 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 ................................. Senior Vice President of the Advisers, Vice President and Chief Accounting
Date of Birth: 08/04/46, Officer of each of the funds in the Fund Complex and certain other
Vice President and Chief Accounting Officer investment companies advised by the Advisers or their affiliates.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND
OFFICES WITH THE COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Ronald A. Nyberg ................................. Executive Vice President, General Counsel, Secretary and Director of Van
Date of Birth: 07/29/53, Kampen. Mr. Nyberg is Executive Vice President, General Counsel, Assistant
Vice President and Secretary Secretary and a Director of the Advisers and the Distributor, Van Kampen
Advisors Inc., Van Kampen Management Inc., Van Kampen Exchange Corp.,
American Capital Contractual Services Inc. and Van Kampen Trust Company.
Executive Vice President, General Counsel and Assistant Secretary of
Investor Services. Director or officer of certain other subsidiaries of Van
Kampen. Director of ICI Mutual Insurance Co., a provider of insurance to
members of the Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and Secretary of
VK/AC Holding, Inc. Prior to April of 1998, Executive Vice President,
General Counsel and Director of Van Kampen Merritt Equity Advisors Corp.
Prior to April of 1997, he was Executive Vice President, General Counsel
and a Director of Van Kampen Merritt Equity Holdings Corp. Prior to
September of 1996, he was General Counsel of McCarthy, Crisanti & Maffei,
Inc. 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. 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.
Paul R. Wolkenberg ............................... Executive Vice President and Director of Van Kampen. Executive Vice
Date of Birth: 11/10/44, President of the Asset Management and the Distributor. President and a
Vice President Director of Van Kampen Investor Services Inc. President and Chief Operating
Officer of Van Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding, Inc. Vice President
of each of the funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates.
Edward C. Wood III ............................... Senior Vice President of the Advisers, Van Kampen and Van Kampen Management
Date of Birth: 01/11/56 Inc. Senior Vice President and Chief Operating Officer of the Distributor.
Vice President and Chief Financial Officer 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 ................................. First Vice President of Van Kampen and the Advisers. Treasurer of each of
Date of Birth: 08/20/55, the funds in the Fund Complex and certain other investment companies
Treasurer advised by the Advisers or their affiliates.
Tanya M. Loden ................................... Vice President of Van Kampen and the Advisers. Controller of each of the
Date of Birth: 11/19/59, funds in the Fund Complex and other investment companies advised by the
Controller Advisers or their affiliates.
Nicholas Dalmaso ................................. Associate General Counsel and Assistant Secretary of Van Kampen. Vice
Date of Birth: 03/01/65, President, Associate General Counsel and Assistant Secretary of the
Assistant Secretary Advisers, the Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the Advisers or their
affiliates.
Huey P. Falgout, Jr. ............................. Vice President, Assistant Secretary and Senior Attorney of Van Kampen. Vice
Date of Birth: 11/15/63, President, Assistant Secretary and Senior Attorney of the Advisers, the
Assistant Secretary Distributor, Investor Services, Van Kampen Management Inc., American
Capital Contractual Services, Inc., Van Kampen Exchange Corp. and Van
Kampen Advisors Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the Advisers or their
affiliates.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND
OFFICES WITH THE COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Scott E. Martin .................................. Senior Vice President, Deputy General Counsel and Assistant Secretary of
Date of Birth: 08/20/56, Van Kampen, Senior Vice President, Deputy General Counsel and Secretary of
Assistant Secretary the Advisers, the Distributor, Investor Services, American Capital
Contractual Services, Inc., Van Kampen Management Inc., Van Kampen Exchange
Corp., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois
Inc., Van Kampen System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy General Counsel and
Assistant Secretary of VK/AC Holding, Inc. Prior to April of 1998, 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 their affiliates.
Weston B. Wetherell .............................. Vice President, Associate General Counsel and Assistant Secretary of Van
Date of Birth: 06/15/56, Kampen, the Advisers, the Distributor, Van Kampen Management Inc. and Van
Assistant Secretary Kampen 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 their affiliates.
Joanna Haigney ................................... Assistant Vice President, Senior Manager of Fund Administration and
73 Tremont Street Compliance Services, Chase Global Funds Services Company; Officer of
Boston, MA 02108 various investment companies advised or subadvised by Morgan Stanley Asset
Date of Birth: 10/10/66 Management Inc. Previously with Coopers & Lybrand LLP.
Assistant Treasurer
Steven M. Hill ................................... Vice President of Van Kampen and the Advisers. Assistant Treasurer of each
Date of Birth: 10/16/64, of the funds in the Fund Complex and other investment companies advised by
Assistant Treasurer the Advisers or their affiliates.
Michael Robert Sullivan .......................... Assistant Vice President of the Advisers. Assistant Controller of each of
Date of Birth: 03/30/33, the funds in the Fund Complex and other investment companies advised by the
Assistant Controller Advisers or their affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 64 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
Van Kampen Series Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Van Kampen Series Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of the Advisers, the
Distributor, Van Kampen, or Morgan Stanley Dean Witter & Co. (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 trustee/directors 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,
30
<PAGE>
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/director, 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/ director. 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/directors 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/director, 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/director. 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/director, 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
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
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 Directors 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.
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
31
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
---------------------------------------
AGGREGATE
PENSION OR AGGREGATE
YEAR FIRST AGGREGATE COMPENSATION RETIREMENT ESTIMATED MAXIMUM
APPOINTED OR BEFORE DEFERRAL FROM BENEFITS ANNUAL BENEFITS
ELECTED TO THE THE ACCRUED AS PART OF FOR THE FUND UPON
NAME(1) BOARD COMPANY(2) EXPENSES(3) RETIREMENT(4)
- -------------------------------------- --------------- ---------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
J. Miles Branagan* 1997 $ 13,672 $ 30,328 $ 60,000
Linda Hutton Heagy* 1997 11,072 3,141 60,000
R. Craig Kennedy* 1997 13,672 2,229 60,000
Jack E. Nelson* 1997 13,672 15,820 60,000
Jerome L. Robinson 1997 4,072 32,020 15,750
Phillip B. Rooney* 1997 13,672 0 60,000
Dr. Fernando Sisto* 1997 13,672 60,208 60,000
Wayne W. Whalen* 1997 13,672 10,788 60,000
<CAPTION>
TOTAL
COMPENSATION
BEFORE
DEFERRAL
FROM FUND
NAME(1) COMPLEX(3)
- -------------------------------------- --------------
<S> <C>
J. Miles Branagan* $ 111,197
Linda Hutton Heagy* 111,197
R. Craig Kennedy* 111,197
Jack E. Nelson* 104,322
Jerome L. Robinson 107,947
Phillip B. Rooney* 74,697
Dr. Fernando Sisto* 111,197
Wayne W. Whalen* 111,197
</TABLE>
- --------------
* Currently a member of the Board of Directors.
(1) Persons not designated by an asterisk are not currently members of the
Board of Directors, but were members of the Board of Directors during
the Company's most recently completed fiscal year. Mr. Robinson retired
from the Board of Directors on December 31, 1997. Directors not
eligible for compensation are not included in the compensation table.
(2) The amounts shown in this column represent the Aggregate Compensation
before Deferral from all operating portfolios of the Company, with
respect to the Fund's fiscal year ended June 30, 1998. The detail of
aggregate compensation before deferral from each operating portfolio
(except the Equity Growth Fund which paid no compensation to
trustees/directors for its fiscal year ended June 30, 1998) is shown in
Table A below. The following directors deferred compensation from the
operating portfolios of the Company, during the fiscal year ended June
30, 1998: Mr. Branagan, $9,600; Ms. Heagy, $7,000; Mr. Kennedy, $4,800;
Mr. Nelson, $9,600; Mr. Rooney, $9,600; Dr. Sisto, $4,800; and Mr.
Whalen, $9,600. The details of amounts deferred for each portfolio are
shown in Table B below. Amounts deferred are retained by the Fund and
earn a rate of return determined by reference to either the return on
the common shares of the Fund or other funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee, with the same
economic effect as if such Non-Affiliated Trustee had invested in one
or more funds in the Fund Complex. To the extent permitted by the 1940
Act, each Fund may invest in securities of those funds selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The cumulative deferred compensation (including interest)
accrued with respect to each director, including former directors, from
the Company as of June 30, 1998 is as follows: Mr. Branagan, $13,179;
Ms. Heagy, $11,180; Mr. Kennedy, $7,606; Mr. Nelson, $15,050; Mr.
Robinson, $3,197; Mr. Rooney, $12,004; Dr. Sisto, $12,233; Mr. Whalen,
$14,651; Mr. Miller, $1,681; and Mr. Gaughan, $431. The details of
cumulative deferred compensation (including interest) for each
portfolio are shown in Table C below. The deferred compensation plan is
described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by all operating funds in the Fund Complex for each
trustee/director for such a funds' respective fiscal years ended in
1997. The retirement plan is described above the Compensation Table.
(4) For Mr. Robinson, this is the sum of the actual annual benefits payable
by the operating investment companies in the Fund Complex as of the
date of his retirement for each year of the 10-year period since his
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, 1997 before deferral by the trustees under the deferred
compensation plan. Because the funds in the Fund Complex have different
fiscal year ends, the amounts shown in this column are presented on a
calendar year basis. Certain trustees deferred all or a portion of
their aggregate compensation from the Fund Complex during the calendar
year ended December 31, 1997. 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
extend permitted by the 1940 Act, the Fund may invest in securities of
those investment companies selected by the Non-Affiliated Trustees in
order to match the deferred compensation obligation. The Advisers and
their affiliates also serve as investment adviser for other investment
companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by
the Advisers and their affiliates, Mr. Whalen received Total
Compensation of $268,447 during the calendar year ended December 31,
1997.
32
<PAGE>
As of September 3, 1998, the Directors and officers of the Fund as a group
owned less than 1% of the shares of each Fund.
FISCAL YEAR 1998 AGGREGATE COMPENSATION FROM THE COMPANY AND EACH PORTFOLIO
TABLE A
<TABLE>
<CAPTION>
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO
- ---------------------------------------------- ----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggressive Equity Fund........................ $ 781 $ 581 $ 781 $ 781 $ 70 $ 781 $ 781
American Value Fund........................... 1,043 843 1,043 1,043 150 1,043 1,043
Asian Growth Fund............................. 1,966 1,766 1,966 1,966 1,260 1,966 1,966
Emerging Markets Fund......................... 1,203 1,003 1,203 1,203 460 1,203 1,203
Global Equity Fund............................ 963 763 963 963 0 963 963
Global Equity Allocation Fund................. 1,233 1,033 1,233 1,233 454 1,233 1,233
Global Fixed Income Fund...................... 643 443 643 643 36 643 643
Government Obligations Fund................... 358 358 358 358 358 358 358
High Yield & Total Return Equity Fund......... 661 461 661 661 44 661 661
International Magnum Fund..................... 732 532 732 732 60 732 732
Latin American Fund........................... 819 619 819 819 126 819 819
Money Market Fund............................. 608 608 608 608 608 608 608
U.S. Real Estate Fund......................... 669 469 669 669 40 669 669
Value Fund.................................... 793 593 793 793 0 793 793
Worldwide High Income Fund.................... 1,200 1,000 1,200 1,200 406 1,200 1,200
----------- --------- --------- --------- ----------- --------- ---------
Company Total............................... $ 13,672 $ 11,072 $ 13,672 $ 13,672 $ 4,072 $ 13,672 $ 13,672
----------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
FUND NAME WHALEN
- ---------------------------------------------- ---------
<S> <C>
Aggressive Equity Fund........................ $ 781
American Value Fund........................... 1,043
Asian Growth Fund............................. 1,966
Emerging Markets Fund......................... 1,203
Global Equity Fund............................ 963
Global Equity Allocation Fund................. 1,233
Global Fixed Income Fund...................... 643
Government Obligations Fund................... 358
High Yield & Total Return Equity Fund......... 661
International Magnum Fund..................... 732
Latin American Fund........................... 819
Money Market Fund............................. 608
U.S. Real Estate Fund......................... 669
Value Fund.................................... 793
Worldwide High Income Fund.................... 1,200
---------
Company Total............................... $ 13,672
---------
</TABLE>
1998 AGGREGATE COMPENSATION DEFERRED FROM THE COMPANY AND EACH PORTFOLIO
TABLE B
<TABLE>
<CAPTION>
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY
- ----------------------------------------------------- ----------- --------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Equity Fund............................... $ 711 $ 511 $ 356 $ 711 $ 0 $ 711
American Value Fund.................................. 893 693 446 893 0 893
Asian Growth Fund.................................... 706 506 353 706 0 706
Emerging Markets Fund................................ 743 543 372 743 0 743
Global Equity Fund................................... 963 763 482 963 0 963
Global Equity Allocation Fund........................ 779 579 390 779 0 779
Global Fixed Income Fund............................. 607 407 304 607 0 607
High Yield & Total Return Equity Fund................ 617 417 308 617 0 617
International Magnum Fund............................ 672 472 336 672 0 672
Latin American Fund.................................. 693 493 346 693 0 693
U.S. Real Estate Fund................................ 629 429 314 629 0 629
Value Fund........................................... 793 593 396 793 0 793
Worldwide High Income Fund........................... 794 594 397 794 0 794
--
----------- --------- ----------- --------- ---------
Company Total...................................... $ 9,600 $ 7,000 $ 4,800 $ 9,600 $ 0 $ 9,600
--
----------- --------- ----------- --------- ---------
<CAPTION>
FUND NAME SISTO WHALEN
- ----------------------------------------------------- --------- ---------
<S> <C> <C>
Aggressive Equity Fund............................... $ 356 $ 711
American Value Fund.................................. 446 893
Asian Growth Fund.................................... 353 706
Emerging Markets Fund................................ 372 743
Global Equity Fund................................... 482 963
Global Equity Allocation Fund........................ 390 779
Global Fixed Income Fund............................. 304 607
High Yield & Total Return Equity Fund................ 308 617
International Magnum Fund............................ 336 672
Latin American Fund.................................. 346 693
U.S. Real Estate Fund................................ 314 629
Value Fund........................................... 396 793
Worldwide High Income Fund........................... 397 794
--------- ---------
Company Total...................................... $ 4,800 $ 9,600
--------- ---------
</TABLE>
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE COMPANY AND EACH
PORTFOLIO
TABLE C
<TABLE>
<CAPTION>
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO
- ------------------------------------------- ----------- --------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggressive Equity Fund..................... $ 754 $ 543 $ 382 $ 765 $ 0 $ 763 $ 364
American Value Fund........................ 949 734 480 961 0 958 457
Asian Growth Fund.......................... 751 539 380 761 0 759 362
Emerging Markets Fund...................... 791 578 401 801 0 800 381
Global Equity Fund......................... 1,174 957 594 1,188 0 1,186 565
Global Equity Allocation Fund.............. 3,579 4,206 2,780 5,397 3,197 2,374 7,318
Global Fixed Income Fund................... 644 433 327 654 0 652 610
High Yield & Total Return Equity Fund...... 655 444 332 664 0 662 316
International Magnum Fund.................. 714 502 362 724 0 722 344
Latin American Fund........................ 737 525 374 747 0 746 355
U.S. Real Estate Fund...................... 668 457 339 678 0 676 322
Value Fund................................. 843 630 427 854 0 852 406
Worldwide High Income Fund................. 920 632 428 856 0 854 433
----------- --------- ----------- --------- ----------- --------- ---------
Company Total............................ $ 13,179 $ 11,180 $ 7,606 $ 15,050 $ 3,197 $ 12,004 $ 12,233
----------- --------- ----------- --------- ----------- --------- ---------
<CAPTION>
FUND NAME WHALEN MILLER GAUGHAN
- ------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Aggressive Equity Fund..................... $ 752 $ 0 $ 0
American Value Fund........................ 945 0 0
Asian Growth Fund.......................... 748 0 0
Emerging Markets Fund...................... 788 0 0
Global Equity Fund......................... 1,169 0 0
Global Equity Allocation Fund.............. 5,162 1,681 431
Global Fixed Income Fund................... 642 0 0
High Yield & Total Return Equity Fund...... 652 0 0
International Magnum Fund.................. 711 0 0
Latin American Fund........................ 735 0 0
U.S. Real Estate Fund...................... 666 0 0
Value Fund................................. 840 0 0
Worldwide High Income Fund................. 841 0 0
--------- --------- -----
Company Total............................ $ 14,651 $ 1,681 $ 431
--------- --------- -----
</TABLE>
33
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
The Adviser is an indirect wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW"). The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, and has its offices at One Parkview
Plaza, Oakbrook Terrace, IL 60181 and 2800 Post Oak Boulevard, Houston, TX
77056. Pursuant to the advisory agreement (the "Advisory Agreement") between the
Adviser and the Company, the Adviser provides investment services to the Funds.
Additionally, pursuant to the administration agreement (the "Administration
Agreement") between the Adviser and the Company, the Adviser (the
"Administrator") provides administrative services to the Funds. The current
Advisory Agreement and Administration Agreement for each Fund except the Global
Franchise Fund became effective as of July 2, 1997. The Adviser received
compensation for advisory services to the Non-Money Funds of the Company for the
fiscal year ended June 30, 1998 of approximately $21,021,000 (and voluntarily
waived a portion of such fees equal to approximately $2,664,000). The
Administrator received compensation for Administrative Services to the Non-Money
Funds of the Company for the fiscal year ended June 30, 1998 of approximately
$5,956,000. The current Advisory Agreement and Administration Agreement for the
Global Franchise Fund was approved by the Board of Directors on July 30, 1998.
For the fiscal year ended June 30, 1998, the Company paid advisory fees to Van
Kampen for the Money Market Fund of approximately $680,000 (and voluntarily
waived a portion of such fees equal to approximately 195,000). As Adviser for
the Government Obligations Money Market Fund, the Company paid to Van Kampen
approximately $289,000 (and voluntarily waived a portion of such fees equal to
approximately $183,000).
MSAM is an indirect wholly-owned subsidiary of MSDW and currently acts as
sub-adviser pursuant to an investment sub-advisory agreement between MSAM and
the Adviser to each of the Company's Funds, other than the Mid Cap Growth and
Value Funds. The principal offices of the MSAM are located at 1221 Avenue of the
Americas, New York, NY 10020. Prior to July 2, 1997, MSAM served as investment
adviser and administrator for such Funds. As compensation for advisory services
to the non-money Funds of the Company for the fiscal years ended June 30, 1996
and June 30, 1997, MSAM, the prior adviser, earned fees of approximately
$7,177,000 (and voluntarily waived a portion of such fees equal to approximately
$1,328,000) and $10,409,000 (and voluntarily waived a portion of such fees equal
to approximately $1,716,000). Further, for the fiscal years ended June 30, 1996
and June 30, 1997, MSAM, as adviser for the PCS Money Market Portfolio (the
"Predecessor Money Market Portfolio") the predecessor to the Money Market Fund
received $759,398 and $882,000, respectively (net of voluntary fee waivers of
$153,797 and $579,000,) and as adviser for the PCS Government Obligations Money
Market Portfolio (the "Predecessor Government Obligations Money Market
Portfolio") the predecessor to the Government Obligations Money Market Fund
received $395,312 and $542,000, respectively (net of voluntary fee waivers of $0
and $45,251). For the fiscal years ended June 30, 1996 and June 30, 1997, the
Company paid administrative fees to MSAM, the prior administrator to the Funds,
of approximately $2,273,000 and $3,187,000, respectively. For the fiscal years
ended June 30, 1996 and for the fiscal period from July 1, 1996 to September 26,
1996, PFPC Inc., which served as administrator to the Predecessor Money Market
Portfolio and Predecessor Government Obligations Money Market Portfolio (the
"Predecessor Portfolios"), was paid aggregate administrative fees of $273,252
and $73,440, respectively.
MAS is an indirect wholly-owned subsidiary of MSDW with its principal
offices located at One Tower Bridge, West Conshohocken, PA 19428. Pursuant to an
investment sub-advisory agreement between MAS and the Adviser, MAS currently
provides sub-advisory services to each of the Mid Cap Growth and Value Funds.
Prior to July 2, 1998, MAS served as investment adviser and administrator for
such Funds. MAS did not receive any compensation as an adviser or administrator
for such Funds for the fiscal year ended June 30, 1997 or before as such Funds
had not commenced investment operations during such periods.
Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company, a corporate
affiliate of Chase, provides certain administrative services to the Company.
CGFSC provides operational and administrative services to investment companies
with approximately $163 billion in assets and having approximately 243,424
shareholder accounts as of June 30, 1998. CGFSC's business address is 73 Tremont
Street, Boston, MA 02108-3913.
DISTRIBUTION OF FUND SHARES
Prior to January 1, 1997, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), a wholly-owned subsidiary of MSDW, served as the distributor of the
Company's shares pursuant to a Distribution Agreement with the Company and a
Plan of Distribution for each Money Market Fund and each class of each Non-Money
Fund pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan" and collectively,
the "Plans"). Subsequent to January 1, 1997, Van Kampen Funds Inc. (the
"Distributor") replaced Morgan Stanley as distributor of the Company's shares
pursuant to a Distribution Agreement with the Company and the Plans. Under each
Plan the Company's distributor is entitled to receive from the Funds a
distribution fee, which is accrued daily and paid monthly, of up to 0.50% for
each of the Money Market Funds and up to 0.75% of the Class B shares and Class C
shares of each of the Non-Money Funds, on an annualized basis, of the average
daily net assets of such Fund or classes. The Distributor expects to allocate
most of its fee to investment dealers, banks or financial service firms that
provide distribution, administrative or shareholder services (a "Participating
Dealer"). The actual amount of such reimbursement is agreed upon by the
Company's Board of Directors and by the Distributor. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares.
34
<PAGE>
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee. The Plans
for the Class A, Class B and Class C shares of the Non-Money Market Funds were
most recently approved by the Company's Board of Directors, including those
directors who are not "interested persons" of the Company as that term is
defined in the 1940 Act and who have no direct or indirect financial interest in
the operation of a Plan or in any agreements related thereto, on July 30, 1998
and the Plan for the Money Market Funds was most recently approved at the same
meeting.
As reimbursement for providing distribution services to the Company for the
fiscal year ended June 30, 1998, the Distributor received aggregate fees of
approximately $17,265,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1998
FUND NAME (000)
- ------------------------------------------------------------------------------------------------- -------------------
<S> <C>
Global Equity Allocation Fund -- Class A......................................................... $ 219
Global Equity Allocation Fund -- Class B......................................................... 673
Global Equity Allocation Fund -- Class C......................................................... 843
Global Fixed Income Fund -- Class A.............................................................. 14
Global Fixed Income Fund -- Class B.............................................................. 15
Global Fixed Income Fund -- Class C.............................................................. 21
Asian Growth Fund -- Class A..................................................................... 224
Asian Growth Fund -- Class B..................................................................... 379
Asian Growth Fund -- Class C..................................................................... 558
Emerging Markets Fund -- Class A................................................................. 263
Emerging Markets Fund -- Class B................................................................. 452
Emerging Markets Fund -- Class C................................................................. 465
Latin American Fund -- Class A................................................................... 164
Latin American Fund -- Class B................................................................... 264
Latin American Fund -- Class C................................................................... 214
American Value Fund -- Class A................................................................... 289
American Value Fund -- Class B................................................................... 1,232
American Value Fund -- Class C................................................................... 766
Worldwide High Income Fund -- Class A............................................................ 216
Worldwide High Income Fund -- Class B............................................................ 1,101
Worldwide High Income Fund -- Class C............................................................ 517
Aggressive Equity Fund -- Class A................................................................ 100
Aggressive Equity Fund -- Class B................................................................ 706
Aggressive Equity Fund -- Class C................................................................ 141
High Yield & Total Return Fund -- Class A........................................................ 18
High Yield & Total Return Fund -- Class B........................................................ 123
High Yield & Total Return Fund -- Class C........................................................ 50
U.S. Real Estate Fund -- Class A................................................................. 45
U.S. Real Estate Fund -- Class B................................................................. 120
U.S. Real Estate Fund -- Class C................................................................. 37
International Magnum Fund -- Class A............................................................. 104
International Magnum Fund -- Class B............................................................. 356
International Magnum Fund -- Class C............................................................. 112
Japanese Equity Fund -- Class A(1)............................................................... N/A
Japanese Equity Fund -- Class B(1)............................................................... N/A
Japanese Equity Fund -- Class C(1)............................................................... N/A
Growth and Income Fund II -- Class A(1).......................................................... N/A
Growth and Income Fund II -- Class B(1).......................................................... N/A
Growth and Income Fund II -- Class C(1).......................................................... N/A
European Equity Fund -- Class A(1)............................................................... N/A
European Equity Fund -- Class B(1)............................................................... N/A
European Equity Fund -- Class C(1)............................................................... N/A
Money Market Fund................................................................................ 825
Tax-Free Money Market Fund(1).................................................................... N/A
Government Obligations Money Market Fund......................................................... 343
Equity Growth Fund -- Class A.................................................................... N/A
Equity Growth Fund -- Class B.................................................................... N/A
Equity Growth Fund -- Class C.................................................................... N/A
Global Equity Fund -- Class A.................................................................... 108
Global Equity Fund -- Class B.................................................................... 3,543
Global Equity Fund -- Class C.................................................................... 368
Emerging Markets Debt Fund -- Class A(1)......................................................... N/A
Emerging Markets Debt Fund -- Class B(1)......................................................... N/A
Emerging Markets Debt Fund -- Class C(1)......................................................... N/A
Mid Cap Growth Fund -- Class A(1)................................................................ N/A
Mid Cap Growth Fund -- Class B(1)................................................................ N/A
Mid Cap Growth Fund -- Class C(1)................................................................ N/A
Value Fund -- Class A............................................................................ 236
Value Fund -- Class B............................................................................ 845
Value Fund -- Class C............................................................................ 194
Global Franchise Fund -- Class A(1).............................................................. N/A
Global Franchise Fund -- Class B(1).............................................................. N/A
Global Franchise Fund -- Class C(1).............................................................. N/A
</TABLE>
- ------------------
(1) Not operational as of June 30, 1998.
35
<PAGE>
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes require that all employees of the Adviser and
Sub-Advisers preclear any personal securities investment (with limited
exceptions, such as government securities). The preclearance requirement and
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive restrictions
applicable to all employees of the Adviser include a ban on acquiring any
securities in a "hot" initial public offering and a prohibition from profiting
on short-term trading in securities. In addition, no employee may purchase or
sell any security that at the time is being purchased or sold (as the case may
be), or to the knowledge of the employee is being considered for purchase or
sale, by any fund advised by the Adviser or Sub-Adviser. Furthermore, the Codes
provide for trading "blackout periods" that prohibit trading by investment
personnel of the Company within periods of trading by the Company in the same
(or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Company as of September 3, 1998 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Company management's knowledge, as follows:
AGGRESSIVE EQUITY: Van Kampen Trust Company, 2800 Post Oak Blvd, Houston,
TX 77056 owned 5.374% of the total outstanding Class A shares of such Fund.
AMERICAN VALUE FUND: Merrill Lynch, Pierce, Fenner & Smith for the Sole
Benefit of its Customers, 4800 Deer Lake Dr. East 3rd Floor, Jacksonville, FL
32246-6484, owned 8.607% and Van Kampen Trust Company, 2800 Post Oak Blvd,
Houston, Texas 77056 owned 6.273% of the total outstanding Class B shares of
such Fund.
Merrill Lynch, Pierce, Fenner & Smith for the Sole Benefit of its Customers,
4800 Deer Lake Dr. East, 3rd Floor, Jacksonville, FL 32246-6484, owned 12.432%
of the total outstanding Class C shares of such Fund.
GLOBAL EQUITY ALLOCATION FUND: Van Kampen Trust Company, 2800 Post Oak
Blvd, Houston, Texas 77056, owned 17.739% and 21.147% of the outstanding Class A
and B shares, respectively, of such Fund.
GLOBAL FIXED INCOME FUND: The following each held the percentage indicated
of the total outstanding Class A shares of such Fund: MLPF&S, 4800 Deer Lake
Dr., Jacksonville, FL 32246-6484, 17.923%; LaSalle National Bank Cust FBO Bruce
A. Bendoff & Judith D. Bendoff, P.O. Box 1443, Chicago, IL 60690-1443, 14.121%;
FTC & Co. P.O. Box 173736, Denver, Co. 80217-3736, 11.592%; NFSC FBO Bruce S.
Sperling, 55 W. Monroe St., Chicago, IL 60603-5010, 8.202%; Charles Schwab & Co.
Inc., 101 Montgomery St., San Francisco, CA 94104-4122, 6.415%.
Anna E. Fulmer Trustee for Anna E. Fulmer Trust, U/A/D 8/2/93, 1124 Marine
Way West, West Palm Beach, FL, 33408-3630, owned 7.051% of the total outstanding
Class B shares of such Fund.
The following each held the percentage indicated of the total outstanding
Class C shares of such Fund: Esierea Clearing Corp. Geraldine M. Falkiner 1987
111 East Kilbourn Avenue, Milwaukee, WI 53202-6611, 6.466%; MLPF&S, 4800 Deer
Lake Dr., Jacksonville, FL 32246-6484, 5.007%; and Solomon Smith Barney, Inc.,
333 West 34th Street, New York, NY 10001-2483, 5.855%.
EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of its
Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 36.857% of the
total outstanding Class A shares of such Fund.
HIGH YIELD & TOTAL RETURN FUND: The following each held the percentage
indicated of the total outstanding Class A shares of such Fund: MLPF&S, 4800
Deer Lake Dr., Jacksonville, FL 32246-6484, 28.950%; Charles Schwab & Co. Inc.,
101 Montgomery St., San Francisco, CA 94104-4122, 12.499% and Donaldson Lufkin
Jenrette, P.O. Box 2052, Jersey City, NJ 07303-2052, 5.390%.
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned 6.004% and
22.549% of the total outstanding Class B and C shares, respectively, of such
Fund.
LATIN AMERICAN FUND: Charles Schwab for the Sole Benefit of its Customers,
101 Montgomery St., San Francisco, CA 94104-4122, owned 9.873% of the total
outstanding Class A shares of such Fund.
U.S. REAL ESTATE FUND: The following each held the percentage indicated of
the total outstanding Class A shares of such Fund: Charles Schwab & Co. Inc.,
101 Montgomery St., San Francisco, CA 94104-4122 owned 36.020% and Painewebber,
22 Harbor Drive, Port Washington, NY 11050-2524 owned 8.777%.
Dain Rauscher Incorporated, P.O. Box 6368, Lincoln, NE 68506-0368 owned
9.926% of the total outstanding Class C shares of such fund.
INTERNATIONAL MAGNUM FUND: Wachovia Bank NA Cust, FBO East Carolina
University Endowment and Foundation, 301 N. Main Street, P.O. Box 3073, Winston
Salem, NC 27150, owned 6.172% of the total outstanding Class A shares of such
Fund and Charles Schwab & Co. Inc., Exclusive Benefit of its Customers, 101
Montgomery Street, San Francisco, CA 94104-4122, owned 8.798% of the total
outstanding Class A shares of such Fund.
Van Kampen Trust Company, 2800 Post Oak Blvd, Houston, Texas 77056, owned
8.842% of the total outstanding Class B shares of such Fund.
36
<PAGE>
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned 10.533% and
Interstate/Johnson Lane, P.O. Box 1220, Charlotte, NC 28201-1220, owned 8.907%
of the total outstanding Class C shares of such Fund.
MONEY MARKET FUND: PFPC, Inc., 400 Bellevue Parkway, 2nd Floor, Wilmington,
DE 19809, owned 99.514% of the total outstanding shares of the Fund.*
GOVERNMENT OBLIGATIONS MONEY MARKET FUND: PFPC, Inc., 400 Bellevue Parkway,
2nd Floor, Wilmington, DE 19809, owned 99.975% of the total outstanding shares
of the Fund.*
WORLDWIDE HIGH INCOME FUND: Charles Schwab & Co., Inc., Exclusive Benefit
of its Customers, 101 Montgomery Street, San Francisco, CA 94104-4122, owned
7.546% of the total outstanding Class A shares of such Fund.
ASIAN GROWTH FUND: MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484
owned 5.245% of the total outstanding Class B shares of such Fund.
TAX-FREE MONEY MARKET FUND: N/A
JAPANESE EQUITY FUND: N/A
EUROPEAN EQUITY FUND: N/A
EQUITY GROWTH FUND: Van Kampen Trust Company, 2800 Post Oak Blvd., Houston,
Texas 77056 owned 13.228% of the total outstanding Class A shares of such Fund.
Van Kampen Trust Company, 2800 Post Oak Blvd., Houston, Texas, 77056 owned
9.515% and Kathleen Hull Trust dtd 12/08/88 11 Sierra Avenue, Piedmont, CA
94611-3815 owned 5.963% of the total outstanding Class B shares of such Fund.
John G. Elkenrode & Deborah J. Elkenrode, 16 Woodward Ln., Lutherville, MD
21093-3770 owned 14.699% and Concorde Bank Limited P.O. Box 1161, Barbados, West
Indies owns 5.520% of the total outstanding Class C shares of such Fund.
GLOBAL EQUITY FUND: N/A
EMERGING MARKETS DEBT FUND: N/A
MID CAP GROWTH FUND: N/A
GROWTH AND INCOME FUND II: N/A
VALUE FUND: MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned
10.128% and Van Kampen Trust Company, 2800 Post Oak Blvd., Houston, TX 77056
owned 5.681% of the total outstanding Class B shares of such Fund.
MLPF&S, 4800 Deer Lake Dr., Jacksonville, FL 32246-6484, owned 11.149% and
Van Kampen Trust Company, 2800 Post Oak Blvd, Houston, Texas 77056, owned 8.353%
of the total outstanding Class C shares of such Fund.
GLOBAL FRANCHISE FUND: N/A
*The shareholder may be deemed a "controlling person" of the particular Fund
by virtue of its power to control the voting or disposition of the shares it
owns. As a result of its ownership position, the shareholder may be able to
control the outcome of matters voted on by shareholders of the Fund.
MONEY MARKET FUND NET ASSET VALUE
Each of the Money Market Funds seeks to maintain a stable net asset value
per share of $1.00. Each Fund uses the amortized cost method of valuing its
securities, which does not take into account unrealized gains or losses. The use
of amortized cost and the maintenance of a Fund's per share net asset value at
$1.00 is based on the Fund's election to operate under the provisions of Rule
2a-7 under the 1940 Act. As a condition of operating under that Rule, each of
the Money Market Funds must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less, and invest only in securities which are of
"eligible quality" as determined in accordance with regulations of the SEC.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Funds' investment objectives, to stabilize the net asset value per share as
computed for the purposes of sales and redemptions at $1.00. These procedures
include periodic review, as the Directors deem appropriate and at such intervals
as are reasonable in light of current market conditions, of the relationship
between the amortized cost value per share and a net asset value per share based
upon available indications of market value. In such review, investments for
which market quotations are readily available are valued at the most recent bid
price or quoted yield available for such securities or for securities of
comparable maturity, quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets are
valued at fair value, as determined in good faith by, or under procedures
adopted by, the Directors.
In the event of a deviation of over 1/2 of 1% between a Fund's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Directors will promptly consider what action,
if any, should be taken. The Directors will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably
37
<PAGE>
practicable any material dilution or other unfair results which might arise from
differences between the two. Such action may include redemption in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
the average maturity, withholding dividends, paying distributions from capital
or capital gains or utilizing a net asset value per share as determined by using
available market quotations.
There are various methods of valuing the assets and of paying dividends and
distributions from a money market fund. Each of the Money Market Funds values
its assets at amortized cost while also monitoring the available market bid
price, or yield equivalents. Since dividends from net investment income will be
declared daily and paid monthly, the net asset value per share of such Funds
will ordinarily remain at $1.00, but the Funds' daily dividends will vary in
amount. Net realized short-term capital gains, if any, less any capital loss
carryforwards, will be distributed whenever the Directors determine that such
distributions would be in the best interest of shareholders, but in any event,
at least once a year. The Money Market Funds do not expect to realize any
long-term capital gains. Should any such gains be realized, they will be
distributed annually, less any capital loss carryforwards.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement and Investment Sub-Advisory Agreements
authorize each of the Adviser and Sub-Advisers (collectively for this discussion
only, the "Adviser") to select the brokers or dealers that will execute the
purchases and sales of investment securities for the Funds and direct the
Adviser to use its best efforts to obtain the best available price and most
favorable execution with respect to all transactions for the Funds. The Company
has authorized the Adviser to pay higher commissions in recognition of brokerage
services which, in the opinion of the Adviser, are necessary for the achievement
of better execution, provided the Adviser believes this to be in the best
interest of the Company.
In purchasing and selling securities for the Funds, it is the Company's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Funds, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Company. Some
securities considered for investment by a Fund may also be appropriate for other
clients served by the Adviser. If purchase or sale of securities consistent with
the investment policies of a Fund and one or more of these other clients served
by the Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Fund and clients in a manner deemed fair
and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Adviser, and the results of such allocations, are subject to periodic review by
the Company's Directors.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For the three fiscal years ended
June 30, 1996, June 30, 1997 and June 30, 1998, the Company paid brokerage
commissions of approximately $180,458, $464,192 and $450,000, respectively, to
the Morgan Stanley, an affiliated broker-dealer. For the fiscal years ended June
30, 1996, June 30, 1997 and June 30, 1998, commissions paid to Morgan Stanley
represented approximately 6.00%, 7.98% and 4.83%, respectively, of the total
amount of brokerage commissions paid in such period and which were paid on
transactions that represented 2.00%, 7.10% and 10.78%, respectively, of the
aggregate dollar amount of transactions that incurred commissions paid by the
Company during such period.
Fund securities will not be purchased from, or through, or sold to or
through, the Adviser, the Sub-Advisers or Morgan Stanley or any "affiliated
persons," as defined in the 1940 Act, of Morgan Stanley when such entities are
acting as principals, except to the extent permitted by law.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Company but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Company are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
TOTAL RETURN
From time to time the Funds may advertise total return. Total return figures
are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Fund) that would equate an initial
38
<PAGE>
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes that all dividends and distributions are reinvested when paid. The
quotation assumes the amount was completely redeemed at the end of each 1-, 5-,
and 10- year period (or over the life of the Fund) and the deduction of all
applicable Company expenses on an annual basis.
Total return figures are calculated according to the following formula:
<TABLE>
<C> <C> <S>
n
P(1+T) = ERV
</TABLE>
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the beginning
of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof).
</TABLE>
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Funds that
commenced operations prior to June 30, 1998 for the one, three and five year
periods ended June 30, 1998 and for the period from the inception of each Fund
through June 30, 1998 are as follows:
<TABLE>
<CAPTION>
ONE-YEAR THREE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1998 JUNE 30, 1998 JUNE 30, 1998 30, 1998
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares...................... 01/04/93 16.17% 20.42% 15.22% 15.94%
Class B Shares(1)................... 08/01/95 15.33 N/A N/A 18.22
Class C Shares(1)................... 01/04/93 15.37 19.52 14.38 15.09
Global Fixed Income Fund
Class A Shares...................... 01/04/93 5.36 4.94 5.27 6.27
Class B Shares(1)................... 08/01/95 4.65 N/A N/A 4.07
Class C Shares(1)................... 01/04/93 4.65 4.20 4.46 5.46
Asian Growth Fund
Class A Shares...................... 06/23/93 (60.57) (25.87) (10.44) (10.40)
Class B Shares(1)................... 08/01/95 (60.89) N/A N/A (26.66)
Class C Shares(1)................... 06/23/93 (60.88) (26.43) (11.09) (11.05)
American Value Fund
Class A Shares...................... 10/18/93 28.26 22.85 N/A 18.69
Class B Shares(1)................... 08/01/95 27.30 N/A N/A 23.54
Class C Shares(1)................... 10/18/93 27.28 24.35 N/A 17.77
Worldwide High Income Fund
Class A Shares...................... 04/21/94 3.40 17.21 N/A 14.60
Class B Shares(1)................... 08/01/95 2.63 N/A N/A 16.24
Class C Shares(1)................... 04/21/94 2.55 16.27 N/A 13.71
Emerging Markets Fund
Class A Shares...................... 07/06/94 (34.31) (7.08) N/A (6.87)
Class B Shares(1)................... 08/01/95 (34.76) N/A N/A (7.15)
Class C Shares(1)................... 07/06/94 (34.73) (5.90) N/A (7.55)
Latin American Fund
Class A Shares...................... 07/06/94 (17.37) 21.90 N/A 8.67
Class B Shares(1)................... 08/01/95 (17.82) N/A N/A 19.17
Class C Shares(1)................... 07/06/94 (17.86) 21.04 N/A 7.83
Aggressive Equity Fund
Class A Shares...................... 01/02/96 30.93 N/A N/A 33.01
Class B Shares...................... 01/02/96 29.94 N/A N/A 32.07
Class C Shares...................... 01/02/96 29.90 N/A N/A 32.03
U.S. Real Estate Fund
Class A Shares...................... 05/01/96 8.27 N/A N/A 21.93
Class B Shares...................... 05/01/96 7.23 N/A N/A 20.86
Class C Shares...................... 05/01/96 7.20 N/A N/A 20.87
High Yield & Total Return Fund
Class A Shares...................... 05/01/96 10.81 N/A N/A 13.32
Class B Shares...................... 05/01/96 9.86 N/A N/A 12.42
Class C Shares...................... 05/01/96 9.86 N/A N/A 12.42
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR THREE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1998 JUNE 30, 1998 JUNE 30, 1998 30, 1998
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
International Magnum Fund
Class A Shares...................... 07/01/96 8.32% N/A N/A 12.72%
Class B Shares...................... 07/01/96 7.55 N/A N/A 11.88
Class C Shares...................... 07/01/96 7.55 N/A N/A 11.86
Japanese Equity Fund
Class A Shares...................... N/A N/A N/A N/A N/A
Class B Shares...................... N/A N/A N/A N/A N/A
Class C Shares...................... N/A N/A N/A N/A N/A
Growth and Income Fund II
Class A Shares...................... N/A N/A N/A N/A N/A
Class B Shares...................... N/A N/A N/A N/A N/A
Class C Shares...................... N/A N/A N/A N/A N/A
European Equity Fund
Class A Shares...................... N/A N/A N/A N/A N/A
Class B Shares...................... N/A N/A N/A N/A N/A
Class C Shares...................... N/A N/A N/A N/A N/A
Equity Growth Fund
Class A Shares...................... 5/29/98 N/A N/A N/A 2.90%
Class B Shares...................... 5/29/98 N/A N/A N/A 2.80%
Class C Shares...................... 5/29/98 N/A N/A N/A 2.80%
Global Equity Fund
Class A Shares...................... 10/29/97 11.38 N/A N/A N/A
Class B Shares...................... 10/29/97 10.84 N/A N/A
Class C Shares...................... 10/29/97 10.74 N/A N/A N/A
Emerging Markets Debt Fund
Class A Shares...................... N/A N/A N/A N/A N/A
Class B Shares...................... N/A N/A N/A N/A N/A
Class C Shares...................... N/A N/A N/A N/A N/A
Mid Cap Growth Fund
Class A Shares...................... N/A N/A N/A N/A N/A
Class B Shares...................... N/A N/A N/A N/A N/A
Class C Shares...................... N/A N/A N/A N/A N/A
Value Fund
Class A Shares...................... 7/7/97 6.74 N/A N/A N/A
Class B Shares...................... 7/7/97 6.01 N/A N/A N/A
Class C Shares...................... 7/7/97 5.83 N/A N/A N/A
Global Franchise Fund
Class A Shares...................... N/A N/A N/A N/A N/A
Class B Shares...................... N/A N/A N/A N/A N/A
Class C Shares...................... N/A N/A N/A N/A N/A
Money Market Fund....................... 08/04/89 4.83 14.84 23.06 4.80
Tax-Free Money Market Fund.............. N/A N/A N/A N/A N/A
Government Obligations Money Market
Fund................................... 03/12/92 4.79 14.72 22.91 3.89
</TABLE>
- ------------------
The Japanese Equity, Growth and Income II, European Equity, Emerging Markets
Debt, Mid Cap Growth, Global Franchise and Tax-Free Money Market Funds had not
commenced operations in the fiscal year ended June 30, 1998.
(1) The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
The Class B shares commenced operations on August 1, 1995.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
40
<PAGE>
Current yield figures are obtained using the following formula:
<TABLE>
<S> <C> <C>
2[(a - b + 1) - 1]
Yield = ------------------
cd
</TABLE>
where:
<TABLE>
<C> <C> <S>
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 income distributions
d = the maximum offering price per share on the last day of the period
</TABLE>
The respective current yields for the following Funds 30-day period ended
June 30, 1998 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND NAME SHARES SHARES SHARES
- ----------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Global Fixed Income Fund 3.18 2.59 2.59
Worldwide High Income Fund 9.18 8.85 8.86
High Yield & Total Return Fund 7.06 6.65 6.65
</TABLE>
CALCULATION OF YIELD FOR MONEY MARKET FUNDS
The current yield of the Money Market, Tax-Free Money Market and Government
Obligations Money Market Funds are calculated daily on a base period return for
a hypothetical account having a beginning balance of one share for a particular
period of time (generally 7 days). The return is determined by dividing the net
change (exclusive of any capital changes in such account) by its average net
asset value for the period, and then multiplying it by 365/7 to determine the
annualized current yield. The calculation of net change reflects the value of
additional shares purchased with the dividends by the Fund, including dividends
on both the original share and on such additional shares. The yields of the
Money Market Fund and Government Obligations Money Market Fund for the 7-day
period ended June 30, 1998 were 4.67% and 4.19% respectively. An effective
yield, which reflects the effects of compounding and represents an annualization
of the current yield with all dividends reinvested, may also be calculated for
each Fund by dividing the base period return by 7, adding 1 to the quotient,
raising the sum to the 365th power, and subtracting 1 from the result. The
effective yields of the Money Market Fund and Government Obligations Money
Market Fund for the 7-day period ended June 30, 1998 were 4.77% and 4.28%,
respectively.
The yield of a Fund will fluctuate. The annualization of a week's dividend
is not a representation by the Fund to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
investment quality, average maturity, the type of instruments the Fund invests
in, changes in interest rates on instruments, changes in the expenses of the
Fund and other factors. Yields are one basis investors may use to analyze the
Funds, and other investment vehicles; however, yields of other investment
vehicles may not be comparable because of the factors set forth in the preceding
sentence, differences in the time periods compared, and differences in the
methods used in valuing fund instruments, computing net asset value and
calculating yield.
TAXABLE EQUIVALENT YIELD
It is easy to calculate your own taxable equivalent yield if you know your
tax bracket. The formula is:
<TABLE>
<C> <C> <S>
Tax Free Yield
- ------------------- = Your Taxable Equivalent
1 - Your Tax Bracket Yield
</TABLE>
For example, if you are in the 28% tax bracket and can earn a tax-free yield
of 7.5%, the taxable equivalent yield would be 10.42%. The table below indicates
the advantages of investments in Municipal Bonds for certain investors.
Tax-exempt rates of interest payable on a Municipal Bond (shown at the top of
each column) are equivalent to the taxable yields set forth opposite the
respective income tax levels, based on income tax rates effective for the tax
year 1997 under the Code. There can, of course, be no guarantee that the
Tax-Free Money Market Fund will achieve a specific yield. Also, it is possible
that some portion of the Fund's dividends may be subject to federal income
taxes. A substantial portion, if not all, of such dividends may be subject to
state and local taxes.
TAXABLE EQUIVALENT YIELD TABLE
<TABLE>
<CAPTION>
SAMPLE LEVEL OF FEDERAL
TAXABLE INCOME INCOME TAXABLE EQUIVALENT RATES BASED ON TAX-EXEMPT YIELD OF:
- ------------------------------------ TAX ------------------------------------------------------------------
SINGLE RETURN JOINT RETURN BRACKETS 3% 4% 5% 6% 7% 8% 9% 10% 11%
- ----------------- ----------------- --------- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$24,650 $0-$41,200 15% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% 12.94%
$24,650-$59,750 $41,200-$99,600 28% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% 15.28%
$59,750-$124,650 $99,600-$151,750 31% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49% 15.94%
$124,650-$271,050 $151,750-$271,050 36% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% 17.19%
$271,050 and up $271,050 and up 39.6% 4.97% 6.62% 8.28% 9.93% 11.59% 13.23% 14.90% 16.56% 18.21%
</TABLE>
- --------------
* Net amount subject to 1997 federal income tax after deductions and exemptions,
not indexed for 1997 income tax rates.
41
<PAGE>
COMPARISONS
To help investors better evaluate how an investment in a Fund of Morgan
Stanley Fund, Inc. might satisfy their investment objective, advertisements
regarding the Company may discuss various measures of Fund performance as
reported by various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices and averages. The following publications may be used:
(a) Dow Jones Composite Average or its component averages -- an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -- unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
company stocks and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices -- unmanaged
indices of all industrial, utilities, transportation and finance company stocks
listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices -- represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper -- Capital Appreciation Index -- a composite of mutual funds
managed for maximum capital gains.
(f) Lipper -- Mutual Fund Performance Analysis and Lipper -- Fixed Income
Fund Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index -- an arithmetic, market
value-weighted average of the performance of over 1,000 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
(h) Goldman Sachs 100 Convertible Bond Index -- currently includes 67 bonds
and 33 preferred. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(i) Salomon Smith Barney GNMA Index -- includes pools of mortgages
originated by private lenders and guaranteed by the mortgage pools of the
Government National Association.
(j) Salomon Smith Barney High Grade Corporate Bond Index -- consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
(k) Salomon Smith Barney Broad Investment Grade Bond Index -- is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated BBB or better, United States
Treasury/agency issues and mortgage pass-through securities.
(l) Salomon Brothers World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
<TABLE>
<S> <C>
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
</TABLE>
(m) J.P. Morgan Traded Global Bond Index -- is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(n) Lehman LONG-TERM Treasury Bond Index -- is composed of all bonds covered
by the Lehman Treasury Bond Index with maturities of 10 years or greater.
(o) Lehman Aggregate Bond Index -- is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
(p) NASDAQ Industrial Index is composed of more than 3,000 industrial
issues. Ifmis a value-weighted index calculated on price change only and does
not include income.
(q) Composite Indices -- 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(r) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
- -- analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
42
<PAGE>
(s) Mutual Fund Source Book, published by Morningstar, Inc. -- analyzes
price, yield, risk and total return for equity funds.
(t) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper Analytical Services, Inc., Morningstar, Inc.,
New York Times, Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance over
specified time periods.
(u) Consumer Price Index (or cost of Living Index), published by the United
States Bureau of Labor Statistics -- a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
(v) Stocks, Bonds, Bills and Inflation, published by Hobson Associates --
historical measure of yield, price and total return for common and small company
stock, long-term government bonds, Treasury bills and inflation.
(w) Savings and Loan Historical Interest Rates -- as published in the United
States Savings & Loan League Fact Book.
(x) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(y) The MSCI Combined Far East Free ex-Japan Index -- a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Taiwan and Thailand. Korea is included in the MSCI
Combined Far East Free ex-Japan Index at 20% of its market capitalization.
(z) CS First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(bb) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, New Zealand, the Far
East, Canada and the United States.
(cc) Morgan Stanley Capital International Emerging Markets Global Latin
American Index -- An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela. (Assumes reinvestment of
dividends.)
(dd) IFC Global Total Return Composite Index -- An unmanaged index of common
stocks and includes developing countries in Latin America, East and South Asia,
Europe, the Middle East and Africa (net of dividends reinvested).
(ee) EMBI+ -- Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments. A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.
(ff) The MSCI Latin America Global Index -- is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends).
(gg) Morgan Stanley Capital International Japan Index -- An unmanaged index
of common stocks (assumes dividends reinvested).
(hh) NAREIT Index -- An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
(ii) Standard & Poor's 400 Mid Cap Index -- The Standard and Poor's Midcap
400 is a capitalization-weighted index that measures the performance of the
mid-range sector of the U.S. stock market where the medium market capitalization
is approximately $700 million.
(jj) Russell 2500 Index -- comprised of the bottom 500 stocks in the Russell
1000 Index which represents the universe of stocks from which most active money
managers typically select; and all the stocks in the Russell 2000 Index. The
largest security in the index has a market capitalization of approximately $1.3
billion.
(kk) The Worldwide High Income Blended Index -- is an unmanaged index
comprised of 50% CS First Boston High Yield Index, 25% J.P. Morgan Latin
Eurobond Index and 25% J.P. Morgan Emerging Markets Bond Index Plus.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Company's Funds, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
43
<PAGE>
GENERAL PERFORMANCE INFORMATION
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Fund's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.
Fund advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. The Funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the Funds. The
Funds may also compare their performance to that of other compilations or
indices that may be developed and made available in the future.
The Funds may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and various investment alternatives. Advertisements may include lists
of representative Morgan Stanley clients. The Funds may also from time to time
include discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or illustrations of
the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, questionnaires designed to help
create a personal financial profile, worksheets used to project savings needs
based on assumed rates of inflation and hypothetical rates of return and action
plans offering investment alternatives), investment management techniques,
policies or investment suitability of a Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments). Advertisements and sales materials
relating to a Fund may include information regarding the background and
experience of its portfolio managers; the resources, expertise and support made
available to the portfolio managers by Morgan Stanley or its affiliates; and the
portfolio managers' goals, strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global
economy as a whole and the effects of inflation. The Funds may include
discussions and illustrations of the growth potential of various global markets
including, but not limited to, Africa, Asia, Europe, Latin America, North
America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the Funds'
shareholder reports (including the investment composition of a Fund), as well as
the views of Morgan Stanley as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark correlation
in advertising. The Funds may compare these measures to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. A Fund may also
advertise its current interest rate sensitivity, duration, weighted average
maturity or similar maturity characteristics.
The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against
44
<PAGE>
loss in a declining market, the investor's average cost per share can be lower
than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
From time to time marketing materials may provide a portfolio manager
update, an adviser update and discuss general economic conditions and outlooks.
The Funds' marketing materials may also show each Fund's asset class
diversification, top five sector holdings and ten largest holdings. Materials
may also mention how the Adviser believes the Fund compares relative to other
funds advised by the Adviser or distributed by the Distributor. Materials may
also discuss the Dalbar Financial Services study from 1984 to 1994 which
examined investor cash flow into and out of all types of mutual funds. The ten
year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless if shareholders purchased their fund in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Funds will also be marketed on the Internet.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Company's Articles of Incorporation permit the Directors to issue 28.5
billion shares of common stock, par value $.001 per share, from an unlimited
number of Funds. Currently the Company is authorized to offer shares of
twenty-three Funds, twenty of which have Class A, Class B and Class C shares.
The shares of each Fund of the Company are fully paid and non-assessable,
and, except as described in the Prospectuses, have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of
each Fund of the Company have no pre-emptive rights. The shares of the Company
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Directors can elect 100% of the
Directors if they choose to do so. A shareholder is entitled to one vote for
each full share owned (and a fractional vote for each fractional share owned),
then standing in his name on the books of the Company.
DIVIDENDS AND DISTRIBUTIONS
The Company's policy is to distribute substantially all of each Fund's net
investment income, if any. Each Fund may choose to make sufficient distributions
of net capital gains to avoid liability for federal excise tax. A Fund will not
be subject to federal income tax on capital gains or ordinary income distributed
to shareholders so long as it qualifies as a RIC (see discussion under
"Dividends and Distributions" and "Taxes" in the Prospectus). However, the
Company may also choose to retain net realized capital gains and pay taxes on
such gains. The amounts of any income dividends or distributions cannot be
predicted.
Any dividend or distribution paid shortly after an investor purchases shares
of an Non-Money Market Fund will reduce the per share net asset value of that
Fund by the per share amount of the dividend or distribution. Furthermore, such
dividends or distributions, although in effect a return of capital, are subject
to income taxes to shareholders subject to taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of a Fund are automatically reinvested
in additional shares of that Fund at net asset value as of the business day
following the record date. This reinvestment policy will remain in effect until
the shareholder notifies the Transfer Agent in writing at least three days prior
to a record date that the shareholder has elected either the Income Option
(income dividends in cash and distributions in additional shares at net asset
value) or the Cash Option (both income dividends and distributions in cash). No
initial sales charge or CDSC is imposed on shares of any of the Funds, including
the Non-Money Funds, that are purchased through the automatic reinvestment of
dividends and distributions of a Fund.
Each Fund generally will be treated as a separate corporation (and hence as
a separate "regulated investment company") for federal tax purposes. Any net
capital gains of any Fund, whether or not distributed to investors, cannot be
offset against net capital losses of any other Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Company's domestic custodian except with respect to the
Money Market Funds. Morgan Stanley Trust Company, Brooklyn, NY, acts as the
Company's custodian for foreign assets held outside the United States and
employs subcustodians who were approved by the Directors of the Company in
accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan Stanley
Trust Company is an affiliate of Morgan Stanley Dean Witter & Co. In the
selection of foreign subcustodians, the Directors consider a number of factors,
including, but not limited to, the reliability and financial stability of the
institution, the ability of the institution to provide efficiently the custodial
services required for the Company, and the reputation of the institution in the
particular country or region. PNC Bank, N.A. serves as the Company's custodian
for each of the Money Market Funds.
45
<PAGE>
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA -- Bonds which are rated AA are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF BOND
RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- -- best quality,
46
<PAGE>
enjoying strong protection from established cash flows of funds for their
servicing or from established broad-based access to the market for refinancing,
or both; MIG-2 -- high quality with margins of protection ample although not so
large as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTES ISSUES: S-1+ -- very strong
capacity to pay principal and interest; SP-1 -- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATING: A-1+ -- this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- this designation indicates the degree of safety regarding
timely payment is very strong.
WITH RESPECT TO RATINGS BY IBCA LTD., the designation A1 by IBCA, Ltd.
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
II. DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES
The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.
United States Treasury securities are backed by the "full faith and credit"
of the United States. Securities issued or guaranteed by federal agencies and
United States Government sponsored instrumentalities may or may not be backed by
the full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities, such
as the Government National Mortgage Associates, are, in effect, backed by the
full faith and credit of the United States through provisions in their charters
that they may make "indefinite and unlimited" drawings on the Treasury, if
needed to service debt. Debt from certain other agencies and instrumentalities,
including the Federal Home Loan Bank and Federal National Mortgage Association,
are not guaranteed by the United States, but those institutions are protected by
the discretionary authority for the United States Treasury to purchase certain
amounts of their securities to assist the institution in meeting its debt
obligations. Finally, other agencies and instrumentalities, such as the Farm
Credit System and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under Government supervision, but their debt securities
are backed only by the creditworthiness of those institutions, not the United
States Government.
Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government agency
organized under federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.
47
<PAGE>
VAN KAMPEN
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (95.0%)
BASIC MATERIALS (1.7%)
CHEMICALS (1.2%)
36,900 Du Pont (EI) de Nemours Co....................... $ 2,754
--------
CHEMICALS (DIVERSIFIED) (0.5%)
18,700 Monsanto......................................... 1,045
--------
TOTAL BASIC MATERIALS........................................... 3,799
--------
CAPITAL GOODS (18.5%)
AEROSPACE/DEFENSE (5.6%)
87,500 Cordant Technologies, Inc........................ 4,036
(a)66,600 Gulfstream Aerospace Corp........................ 3,097
50,800 Northrop Grumman Corp............................ 5,239
--------
12,372
--------
MACHINERY (DIVERSIFIED) (1.9%)
84,900 Case Corp........................................ 4,096
--------
MANUFACTURING (DIVERSIFIED) (6.9%)
43,600 Tyco International Ltd........................... 2,747
132,800 United Technologies Corp......................... 12,284
--------
15,031
--------
OFFICE EQUIPMENT & SUPPLIES (4.1%)
(a)159,400 Knoll, Inc....................................... 4,702
35,300 Pitney Bowes, Inc................................ 1,699
26,600 Xerox Corp....................................... 2,703
--------
9,104
--------
TOTAL CAPITAL GOODS............................................. 40,603
--------
COMMUNICATION SERVICES (0.1%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (0.1%)
(a)5,500 Associated Group, Inc., `B'...................... 219
--------
CONSUMER CYCLICALS (8.6%)
AUTOMOBILES (2.2%)
72,300 General Motors Corp.............................. 4,830
--------
GAMING--LOTTERY (0.4%)
34,100 International Game Technology.................... 827
--------
LODGING--HOTELS (0.6%)
48,200 Hilton Hotels Corp. ............................. 1,374
--------
PUBLISHING (NEWSPAPERS) (1.0%)
24,600 Pulitzer Publishing Co........................... 2,196
--------
RETAIL (SPECIALTY) (0.4%)
(a)32,600 Staples, Inc..................................... 943
--------
SERVICES (ADVERTISING/MARKETING) (0.4%)
(a)28,900 Young & Rubicam, Inc............................. 925
--------
SERVICES (COMMERCIAL & CONSUMER) (3.6%)
(a)249,391 Cendant Corp..................................... 5,206
551,800 Neilsen Media Research........................... 2,552
--------
7,758
--------
TOTAL CONSUMER CYCLICALS........................................ 18,853
--------
CONSUMER STAPLES (16.0%)
BEVERAGES (NON-ALCOHOLIC) (2.4%)
23,900 Coca-Cola Co..................................... 2,043
80,400 Coca-Cola Enterprises, Inc....................... 3,156
--------
5,199
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
BROADCASTING (TV, RADIO, CABLE) (9.7%)
(a)195,500 Clear Channel Communications, Inc................ $ 21,334
--------
ENTERTAINMENT (1.4%)
(a)66,300 SFX Entertainment, Inc. `A'...................... 3,041
--------
FOODS (2.1%)
19,000 Quaker Oats, Co.................................. 1,044
17,600 Ralston-Ralston Purina Group..................... 2,056
16,400 WM. Wrigley Jr. Co............................... 1,607
--------
4,707
--------
TOBACCO (0.4%)
22,600 Philip Morris Cos., Inc.......................... 890
--------
TOTAL CONSUMER STAPLES.......................................... 35,171
--------
FINANCIAL (25.6%)
BANKS (MAJOR REGIONAL) (0.7%)
3,833 Wells Fargo Co................................... 1,414
--------
BANKS (MONEY CENTER) (5.1%)
27,700 BankAmerica Corp................................. 2,394
50,300 Citicorp......................................... 7,507
11,600 Morgan (J.P.) & Co., Inc......................... 1,359
--------
11,260
--------
FINANCIAL (DIVERSIFIED) (3.1%)
60,300 American Express Co.............................. 6,874
--------
INSURANCE (LIFE & HEALTH) (1.0%)
43,600 Reinsurance Group of America, Inc................ 2,237
--------
INSURANCE (MULTI-LINE) (9.0%)
226,500 Loews Corp....................................... 19,734
--------
INSURANCE (PROPERTY--CASUALTY) (6.0%)
50,900 Allstate Corp.................................... 4,661
33,600 General RE Corp.................................. 8,518
--------
13,179
--------
INVESTMENT BANKING & BROKERAGE (0.7%)
15,600 Merrill Lynch & Co., Inc......................... 1,439
--------
TOTAL FINANCIAL................................................. 56,137
--------
TECHNOLOGY (6.0%)
COMMUNICATION EQUIPMENT (0.3%)
(a)9,600 ADC Telecom, Inc................................. 351
(a)7,700 L-3 Communications Holdings, Inc................. 251
--------
602
--------
COMPUTERS (SOFTWARE & SERVICES) (2.9%)
(a)57,300 Microsoft Corp................................... 6,210
--------
ELECTRONICS (COMPONENT DISTRIBUTORS) (0.0%)
(a)4,000 Celestia, Inc.................................... 75
--------
ELECTRONICS (DEFENSE) (2.8%)
(a)105,000 Litton Industries, Inc........................... 6,195
--------
TOTAL TECHNOLOGY................................................ 13,082
--------
TRANSPORTATION (18.5%)
AIRLINES (18.5%)
(a)666,100 Continental Airlines, `B'........................ 40,549
--------
TOTAL COMMON STOCKS (COST $202,290)............................... 208,413
--------
</TABLE>
- --------------
48
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
$ 10,586 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $10,588,
collateralized by $10,565 U.S. Treasury Notes,
5.625%, due 2/15/06, valued at $10,830 (COST
$10,586)....................................... $ 10,586
--------
TOTAL INVESTMENTS (99.8%) (COST $212,876)......................... 218,999
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)...................... 405
--------
NET ASSETS (100%)................................................. $219,404
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
-----------------------
49
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (88.6%)
AEROSPACE (0.2%)
(a)6,700 Coltec Industries, Inc........................... $ 133
(a)5,300 Doncasters plc ADR............................... 147
(a)36,300 Hexcel Corp...................................... 821
(a)2,700 Triumph Group, Inc............................... 113
--------
1,214
--------
BANKING (8.3%)
100,650 AmSouth Bancorp.................................. 3,957
(a)21,700 Cadillac Fairview Corp........................... 499
16,800 City National Corp............................... 621
151,800 Colonial BancGroup, Inc.......................... 4,896
29,450 Comerica, Inc.................................... 1,951
112,200 Community First Bankshares, Inc.................. 2,938
76,000 Compass Bancshares, Inc.......................... 3,430
145,900 Dime Bancorp, Inc................................ 4,368
38,400 First American Corp., Tennessee.................. 1,848
81,500 First Tennessee National Corp.................... 2,572
(a)12,400 Franchise Mortgage Acceptance Co., L.L.C......... 323
(a)19,700 Hawk Corp., 'A'.................................. 347
55,300 Hubco, Inc....................................... 1,980
(a)40,300 Imperial Bancorp, Inc............................ 1,209
24,900 Investors Financial Services Corp................ 1,320
53,500 Mellon Bank Corp................................. 3,725
44,600 Mercantile Bankshares Corp....................... 1,553
39,800 New England Community Bancorp, Inc., 'A'......... 915
34,638 Peoples Heritage Financial Group, Inc............ 818
117,200 Prime Bancshares, Inc............................ 2,974
35,500 Queens County Bancorp, Inc....................... 1,549
101,300 Regions Financial Corp........................... 4,160
28,100 Southtrust Corp.................................. 1,222
87,000 Sovereign Bancorp, Inc........................... 1,422
10,000 Western Bancorp.................................. 422
--------
51,019
--------
BUILDING (3.2%)
(a)191,100 AFC Cable Systems, Inc........................... 6,784
167,900 Southdown, Inc................................... 11,984
7,400 Vulcan Materials Co.............................. 789
--------
19,557
--------
CAPITAL GOODS (1.5%)
72,600 AGCO Corp........................................ 1,493
25,300 Case Corp........................................ 1,221
12,800 Cincinnati Milacron, Inc......................... 311
29,100 Cummins Engine................................... 1,491
140,500 Flowserve Corp................................... 3,460
27,700 Manitowoc Co., Inc............................... 1,117
(a)12,500 Stoneridge, Inc.................................. 228
--------
9,321
--------
CHEMICALS (1.9%)
121,000 Crompton & Knowles Corp.......................... 3,048
17,400 Quaker Chemical Corp............................. 330
293,200 Solutia, Inc..................................... 8,411
--------
11,789
--------
COMMUNICATIONS (4.0%)
(a)79,700 ANTEC Corp....................................... 1,848
(a)48,700 FORE Systems, Inc................................ 1,291
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
(a)159,500 General Instrument Corp.......................... $ 4,336
(a)50,800 Glenayre Technologies, Inc....................... 546
(a)56,400 Journal Register Co.............................. 945
(a)86,100 Paging Network, Inc.............................. 1,205
(a)31,800 SmarTalk Teleservices, Inc....................... 463
(a)206,900 Telco Systems, Inc............................... 2,935
(a)77,300 United Video Satellite Group..................... 3,063
(a)132,100 Valassis Communications, Inc..................... 5,094
(a)160,000 Xircom, Inc...................................... 2,490
(a)34,300 Ziff-Davis, Inc.................................. 476
--------
24,692
--------
COMPUTERS (3.2%)
(a)40,600 Apple Computer, Inc.............................. 1,165
(a)82,900 Computer Horizons Corp........................... 3,072
(a)108,600 Electronics Arts, Inc............................ 5,864
(a)46,200 Quantum Corp..................................... 959
(a)145,000 Splash Technology Holdings, Inc.................. 2,492
(a)35,400 Storage Technology Corp.......................... 1,535
(a)222,000 Sybase, Inc...................................... 1,547
(a)235,200 Transwitch Corp.................................. 3,234
--------
19,868
--------
CONSUMER--DURABLES (2.6%)
215,000 Arvin Industries, Inc............................ 7,807
(a)19,900 Dan River, Inc. 'A'.............................. 338
(a)22,300 Datascope Corp................................... 592
39,000 Kaufman and Broad Home Corp...................... 1,238
(a)1,278,600 Laidlaw Environmental Services................... 4,635
16,000 Lone Star Industries, Inc........................ 1,233
--------
15,843
--------
CONSUMER--RETAIL (5.4%)
(a)191,100 BJ's Wholesale Club, Inc......................... 7,763
(a)59,900 Brylane, Inc..................................... 2,755
82,400 CVS Corp......................................... 3,208
(a)233,100 Office Depot, Inc................................ 7,357
173,400 Ross Stores, Inc................................. 7,456
(a)27,800 Stage Stores, Inc................................ 1,258
116,600 TJX Companies, Inc............................... 2,813
16,200 VF Corp.......................................... 834
--------
33,444
--------
CONSUMER--SERVICE & GROWTH (0.8%)
(a)31,900 Chancellor Media Corp., 'A'...................... 1,584
(a)21,900 Jacor Communications, Inc........................ 1,292
(a)105,200 Prime Hospitality Corp........................... 1,834
--------
4,710
--------
CONSUMER--STAPLES (5.0%)
(a)259,900 Blyth Industries, Inc............................ 8,642
(a)202,000 Consolidated Cigar Holdings, Inc................. 2,475
71,700 Dial Corp........................................ 1,860
49,500 DIMON, Inc....................................... 557
(a)225,300 Fresh Del Monte Produce, Inc..................... 4,267
(a)121,400 General Cigar Holdings, Inc...................... 1,199
40,400 Interstate Bakeries Corp......................... 1,341
36,200 Michael Foods, Inc............................... 1,063
(a)152,500 Omega Protein Corp............................... 2,345
(a)16,000 Standard Commercial Corp......................... 176
</TABLE>
- --------------
50
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
CONSUMER--STAPLES (CONT.)
(a)92,900 Suiza Foods Corp................................. $ 5,545
35,700 Universal Corp................................... 1,334
--------
30,804
--------
ELECTRIC (1.0%)
152,600 Dpl, Inc......................................... 2,766
39,900 DQE, Inc......................................... 1,436
26,900 Florida Progress Corp............................ 1,106
37,000 SCANA Corp....................................... 1,103
--------
6,411
--------
ENERGY (5.6%)
(a)29,300 BJ Services Co................................... 852
2,700 Black Hills Corp................................. 62
41,900 Camco International, Inc......................... 3,263
(a)41,800 Cooper Cameron Corp.............................. 2,132
21,200 Energy East Corp................................. 882
173,000 Enron Oil & Gas Co............................... 3,503
(a)29,800 Horizon Offshore, Inc............................ 292
33,700 MCN Corp......................................... 838
(a)538,424 Ocean Energy, Inc................................ 10,533
14,700 Nicor, Inc....................................... 590
23,400 Noble Affiliates, Inc............................ 889
(a)253,800 R & B Falcon Corp................................ 5,742
(a)38,000 Suburban Propane Partners........................ 734
38,800 Sun Co., Inc..................................... 1,506
33,400 Transocean Offshore, Inc......................... 1,486
8,900 Ultramar Diamond Shamrock Corp................... 281
(a)1,800 Veritas DGC, Inc................................. 90
44,700 Vintage Petroleum, Inc........................... 844
--------
34,519
--------
ENTERTAINMENT (0.8%)
(a)734,900 Acclaim Entertainment, Inc....................... 4,363
(a)9,300 Imax Corp........................................ 212
(a)105,000 The 3DO Company.................................. 331
--------
4,906
--------
FINANCE (1.7%)
(a)36,000 Heller Financial, Inc............................ 1,080
16,300 Nationwide Health Properties, Inc................ 389
(a)19,400 Security Capital Group, Inc. 'B'................. 517
12,400 SL Green Realty Corp............................. 279
72,800 T. Rowe Price Associates, Inc.................... 2,735
242,700 Waddell & Reed Financial, Inc., 'A'.............. 5,810
--------
10,810
--------
FINANCIAL--DIVERSIFIED (6.9%)
27,300 A.G. Edwards, Inc................................ 1,165
20,200 Capital One Financial Corp....................... 2,509
82,200 CMAC Investment Corp............................. 5,055
43,400 Cousins Properties, Inc.......................... 1,297
181,100 Crescent Real Estate Equities Co. REIT........... 6,089
35,600 Developers Diversified Realty Corp............... 1,395
54,300 Duke Realty Investment, Inc. REIT................ 1,286
13,125 Equity Residential Properties Trust.............. 623
46,400 Felcor Suite Hotels, Inc. REIT................... 1,456
35,000 First Washington Realty Trust, Inc............... 814
26,500 Glenborough Realty Trust, Inc.................... 699
(a)36,500 Innotrac Corp.................................... 347
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
12,900 Irvine Apartment Communities, Inc. REIT.......... $ 373
38,000 JDN Realty Corp.................................. 1,211
(a)36,100 Lasalle Hotel Properties REIT.................... 611
21,600 Legg Mason, Inc.................................. 1,243
48,600 Liberty Property Trust, REIT..................... 1,242
58,500 Manufactured Home Communities, Inc. REIT......... 1,411
3,400 Post Properties, Inc............................. 131
(a)23,800 Promus Company, Inc.............................. 916
117,600 Providian Financial Corp......................... 9,239
9,600 Security Capital Industrial Trust................ 240
17,400 The CIT Group, Inc. 'A'.......................... 653
(a)106,900 Unicapital Corp.................................. 2,044
(a)22,600 United Panam Financial Corp...................... 232
(a)5,250 Wellsford Properties, Inc........................ 74
--------
42,355
--------
HEALTH CARE (6.7%)
(a)75,400 Adac Laboratories................................ 1,697
(a)43,800 Agouron Pharmaceuticals, Inc..................... 1,328
168,000 Alpharma, Inc.................................... 3,696
(a)5,100 Amerisource Health Corp., 'A'.................... 335
(a)21,000 Arterial Vascular Engineering, Inc............... 751
(a)21,500 Biogen, Inc...................................... 1,054
(a)108,700 Coventry Health Care, Inc........................ 1,617
(a)444,900 Del Global Technologies Corp..................... 4,449
(a)4,000 Dental Care Alliance, Inc........................ 46
(a)181,000 Guilford Pharmaceuticals, Inc.................... 3,190
(a)3,700 Manhattan Associates, Inc........................ 77
(a)33,800 Pacificare Health Systems........................ 2,987
(a)65,700 PSS World Medical, Inc........................... 961
(a)103,037 Respironics, Inc................................. 1,604
(a)48,100 Transkaryotic Therapies, Inc..................... 1,239
(a)9,000 Trex Medical Corp................................ 149
(a)49,100 Trigon Healthcare, Inc........................... 1,777
75,100 United Wisconsin Services, Inc................... 2,131
(a)13,600 Universal Health Services, Inc................... 794
220,300 Ventas, Inc...................................... 3,043
(a)84,200 Wellpoint Health Networks, Inc................... 6,231
(a)66,100 Wesley Jessen Visioncare, Inc.................... 1,529
(a)35,300 Zonagen, Inc..................................... 774
--------
41,459
--------
INDUSTRIAL (0.4%)
(a)232,400 Philip Services Corp............................. 959
15,900 Steelcase, Inc................................... 413
48,200 Wabash National Corp............................. 1,241
--------
2,613
--------
INSURANCE (5.2%)
117,600 Allmerica Financial Corp......................... 7,644
58,758 AmerUs Life Holdings, Inc. 'A'................... 1,902
(a)17,100 Annuity & Life Re Holdings Ltd................... 378
156,600 Everest Reinsurance Holdings, Inc................ 6,019
42,600 EXEL Ltd......................................... 3,315
86,300 Nationwide Financial Services, Inc., 'A'......... 4,401
195,600 Old Republic International Corp.................. 5,734
50,100 Reliastar Financial Corp......................... 2,405
--------
31,798
--------
</TABLE>
-----------------------
51
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
METALS (1.7%)
169,600 Agnico-Eagle Mines Ltd........................... $ 933
209,200 AK Steel Holding Corp............................ 3,739
259,200 Barrick Gold Corp................................ 4,973
22,700 USX-U.S. Steel Group, Inc........................ 749
--------
10,394
--------
MISCELLANEOUS (1.1%)
95,300 S & P Mid Cap 400 Depositary Receipts............ 6,635
--------
PAPER & PACKAGING (0.7%)
79,900 Bowater, Inc..................................... 3,775
(a)7,500 Owens-Illinois, Inc.............................. 336
--------
4,111
--------
RESTAURANTS (0.4%)
(a)152,700 Friendly Ice Cream Corp.......................... 2,577
--------
RETAIL (2.9%)
(a)125,300 800-JR Cigar, Inc................................ 2,475
6,200 Claire's Stores, Inc............................. 127
(a)7,600 Columbia Sportswear Co........................... 144
34,300 Consolidated Stores Corp......................... 1,243
(a)142,200 Dress Barn, Inc.................................. 3,537
(a)12,600 Gadzooks, Inc.................................... 347
(a)38,200 Goody's Family Clothing, Inc..................... 2,096
(a)21,500 I.C. Isaacs & Co., Inc........................... 75
(a)119,100 Maxwell Shoe Co., Inc., 'A'...................... 2,367
(a)219,500 Novel Denim Holdings Ltd......................... 5,707
--------
18,118
--------
SERVICES (2.2%)
(a)20,100 CDI Corp......................................... 538
19,600 Danka Business Systems plc ADR................... 232
(a)5,300 Data Processing Resources Corp................... 165
(a)78,450 FISERV, Inc...................................... 3,332
(a)138,100 Interim Services, Inc............................ 4,436
26,800 Ogden Corp....................................... 742
41,200 Select Appointments Holdings Public Ltd., Co.
ADR............................................ 1,215
(a)8,100 USA Waste Services, Inc.......................... 400
(a)22,600 Veterinary Centers Of America, Inc............... 425
71,500 Viad Corp........................................ 1,984
--------
13,469
--------
TECHNOLOGY (5.5%)
(a)189,100 Artesyn Technologies, Inc........................ 3,026
(a)29,100 Avid Technology, Inc............................. 975
(a)84,090 Comverse Technology, Inc......................... 4,362
(a)25,800 General Scanning Inc............................. 231
(a)23,300 Keane, Inc....................................... 1,305
(a)47,600 KLA-Tencor Corp.................................. 1,318
(a)133,000 Mentor Graphics Corp............................. 1,405
(a)145,500 Networks Associates, Inc......................... 6,966
(a)788,000 Novell, Inc...................................... 10,047
(a)100,800 Synopsys, Inc.................................... 4,612
--------
34,247
--------
TRANSPORTATION (5.6%)
35,700 Air Express International Corp................... 955
(a)258,400 Atlas Air, Inc................................... 8,737
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
(a)10,900 Avis Rent A Car, Inc............................. $ 270
(a)159,200 Budget Group, Inc., 'A'.......................... 5,084
20,200 Canadian National Railway Co..................... 1,073
67,000 CNF Transportation, Inc.......................... 2,848
117,400 Hertz Corp. 'A'.................................. 5,202
(a)15,000 Jevic Transportation, Inc........................ 171
(a)8,900 Midway Airlines Corp............................. 170
(a)49,500 Midwest Express Holdings......................... 1,791
81,300 Teekay Shipping Corp............................. 2,038
(a)90,000 U.S. Xpress Enterprises, Inc., 'A'............... 1,508
261,850 Werner Enterprises, Inc.......................... 4,992
--------
34,839
--------
UTILITIES (4.1%)
84,100 Allegheny Energy, Inc............................ 2,534
(a)196,200 CalEnergy Co., Inc............................... 5,898
15,500 Eastern Enterprises.............................. 665
59,100 Minnesota Power & Light Co....................... 2,349
146,400 New Century Energies, Inc........................ 6,652
101,100 Pinnacle West Capital Corp....................... 4,550
45,200 Public Service Co. of New Mexico................. 1,025
5,300 SJW Corp......................................... 313
19,600 Washington Water Power Co........................ 440
36,400 Wisconsin Energy................................. 1,106
--------
25,532
--------
TOTAL COMMON STOCKS (COST $530,306)............................. 547,054
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ------------
WARRANTS (0.0%)
BANKING (0.0%)
(a)37,800 Golden State Bancorp, Inc., expiring 1/1/01 (COST
$203).......................................... 201
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ------------
SHORT-TERM INVESTMENT (11.0%)
REPURCHASE AGREEMENT (11.0%)
$ 67,722 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $67,732,
collateralized by various U.S. Treasury
Obligations 6.25%-6.50%, due 8/31/01-10/31/01,
valued at $69,164. (COST $67,722).............. 67,722
--------
TOTAL INVESTMENTS (99.6%) (COST $598,231)....................... 614,977
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).................... 2,360
--------
NET ASSETS (100%)............................................... $617,337
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust
- --------------
52
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (89.7%)
HONG KONG (31.1%)
1,395,500 CLP Holdings Ltd................................. $ 6,358
3,576,430 Hong Kong & China Gas Co., Ltd................... 4,062
241,200 Hong Kong & Shanghai Bank Holdings plc........... 5,899
970,000 Hong Kong Electric Holdings Ltd.................. 3,005
3,172,800 Hong Kong Telecommunications Ltd................. 5,958
710,600 Hutchison Whampoa Ltd............................ 3,751
1,016,000 Li & Fung Ltd.................................... 1,639
75,700 Ng Fung Hong Ltd................................. 52
396,000 Television Broadcasting Ltd...................... 1,048
--------
31,772
--------
INDIA (7.3%)
110,000 Ashok Leyland Ltd................................ 112
163,700 Bharat Heavy Electricals Ltd..................... 950
200 Castrol Ltd...................................... 3
55,100 Container Corp. of India Ltd..................... 594
42,200 Hero Honda Motors Ltd............................ 871
34,700 Housing Development Finance Corp., Ltd........... 2,449
62,500 Nestle India Ltd................................. 543
1,700 SmithKline Beecham Consumer Healthcare Ltd....... 15
211,450 State Bank of India.............................. 1,054
135,000 Tata Engineering & Locomotive Co., Ltd........... 530
32,000 T.V.S. Suzuki Ltd................................ 336
--------
7,457
--------
INDONESIA (1.5%)
93,000 Bat Indonesia (Foreign).......................... 164
(a)605,000 Gudang Garam (Foreign)........................... 357
1,395,000 Indofood Sukses Makmur Tbk....................... 137
4,240,000 Mayora Indah..................................... 172
385,700 Unilever Indonesia (Foreign)..................... 732
--------
1,562
--------
KOREA (5.4%)
12,900 Hankuk Glass Industry Co., Ltd................... 141
(d)206 S.K. Telecom (Foreign)........................... 93
49,010 Nong Shim Co..................................... 2,120
(d)15,572 Pohang Iron & Steel Ltd. (Foreign)............... 511
8,370 S1 Corp.......................................... 847
58,791 Samsung Electronics Co. (Foreign)................ 1,820
(a)148 Samsung Electronics Co. GDS (New)................ 2
--------
5,534
--------
MALAYSIA (9.1%)
367,000 Amway Holdings Bhd............................... 601
491,000 Carlsberg Brewery Malaysia Bhd................... 1,491
134,000 Esso Malaysia Bhd................................ 112
943,000 Guiness Anchor Bhd............................... 1,000
322,000 Hap Seng Consolidated Bhd........................ 171
440,000 Nestle Bhd....................................... 1,993
1,209,000 R.J. Reynolds Bhd................................ 1,675
193,000 Rothmans of Pall Mall Bhd........................ 1,337
204,000 Shell Refining Co. Bhd........................... 290
314,000 Sime Darby Bhd................................... 216
214,000 Telekom Malaysia Bhd............................. 361
--------
9,247
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
PAKISTAN (1.2%)
55,900 Lever Brothers Pakistan Ltd...................... $ 1,054
47,700 Shell Pakistan Ltd............................... 153
--------
1,207
--------
PHILIPPINES (3.9%)
473,800 La Tondena Distillers, Inc....................... 239
(a)5,303,300 Music Corp....................................... 470
28,650 Philippine Long Distance Telephone ADR........... 653
980,200 San Miguel Corp. 'B'............................. 1,293
8,158,180 SM Prime Holdings, Inc........................... 1,291
--------
3,946
--------
SINGAPORE (7.9%)
(a)116,700 Creative Technology Ltd.......................... 1,444
1,312,000 NatSteel Ltd..................................... 2,198
(a)487,000 Singapore Technology Engineering Ltd............. 343
1,064,000 Singapore Telecommunications Ltd................. 1,511
483,000 United Overseas Bank Ltd. (Foreign).............. 1,501
571,000 Venture Manufacturing Ltd........................ 1,082
--------
8,079
--------
TAIWAN (19.1%)
(a)555,750 Asustek Computer, Inc............................ 4,545
(a)218,950 China Development Corp........................... 507
(a)1,222,035 Compal Electronics, Inc.......................... 3,290
(a)116,200 Compeq Manufacturing Co., Ltd.................... 619
(a)977,500 Delpha Construction Co., Ltd..................... 1,280
2,935,841 Far Eastern Textile Ltd.......................... 2,273
(a)535,000 Hon Hai Precision Industry....................... 2,709
(a)425,750 Kuoyang Construction............................. 669
(a)1,514,224 Siliconware Precision Industries Co.............. 2,199
(a)677,150 Taiwan Semiconductor Co.......................... 1,399
--------
19,490
--------
THAILAND (3.2%)
275,000 BEC World Public Co., Ltd........................ 1,049
89,100 Delta Electronics Public Co., Ltd. (Foreign)..... 507
(d)947,700 Eastern Water Resources Development Public Co.,
Ltd. (Foreign)................................. 1,303
(d)56,900 Grammy Entertainment Public Co., Ltd. plc
(Foreign)...................................... 132
(a,d)125,800 GSS Array Technology Public Co., Ltd.
(Foreign)...................................... 298
--------
3,289
--------
TOTAL COMMON STOCKS (COST $114,971)............................... 91,583
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- --------------
WARRANTS (0.0%)
HONG KONG (0.0%)
(a)162,565 Hong Kong and China Gas Co., Ltd. (expiring
9/30/99) (COST $0)............................. 11
--------
TOTAL FOREIGN SECURITIES (89.7%) (COST $114,971).................. 91,594
--------
</TABLE>
-----------------------
53
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (5.9%)
REPURCHASE AGREEMENT (5.9%)
$ 5,971 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $5,972,
collateralized by $5,300 U.S. Treasury Bonds,
6.625%, due 2/15/27, valued at $6,115 (COST
$5,971)........................................ $ 5,971
--------
TOTAL INVESTMENTS IN SECURITIES (95.6%) (COST $120,942)........... 97,565
--------
FOREIGN CURRENCY (6.1%)
HKD 2,419 Hong Kong Dollar................................. 312
IDR 1,297 Indonesian Rupiah................................ --
INR 17,796 Indian Rupee..................................... 420
KRW 71,443 South Korean Won................................. 52
MYR 2,239 Malaysian Ringgit................................ 540
PHP 367 Philippine Peso.................................. 9
PKR 421 Pakistani Rupee.................................. 9
SGD 36 Singapore Dollar................................. 21
THB 179 Thai Baht........................................ 4
TWD 167,138 Taiwan Dollar.................................... 4,864
--------
TOTAL FOREIGN CURRENCY (COST $6,351).............................. 6,231
--------
TOTAL INVESTMENTS (101.7%) (COST $127,293)........................ 103,796
OTHER LIABILITIES IN EXCESS OF ASSETS (-1.7%)..................... (1,719)
--------
NET ASSETS (100%)................................................. $102,077
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
(d) -- Securities valued at fair value -- see note A-1 to financial
statements.
ADR -- American Depositary Receipt
GDS -- Global Depositary Shares
- -----------------------
54
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR NET UNREALIZED GAIN
(000) (000) DATE (000) VALUE (000) (LOSS) (000)
- ----------- ----- ----------- ----------- ----- -------------------
<S> <C> <C> <C> <C> <C>
$ 194 $ 194 7/1/98 SGD 326 $ 193 $ (1)
HKD 800 103 7/2/98 $ 103 103 --
$ 96 96 7/2/98 MYR 397 96 --
$ 66 66 7/2/98 PHP 2,786 66 --
--
----- -----
$ 459 $ 458 $ (1)
--
--
----- -----
----- -----
</TABLE>
- ---------------
HKD -- Hong Kong Dollar
MYR -- Malaysian Ringgit
PHP -- Philippine Peso
SGD -- Singapore Dollar
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
<S> <C> <C>
Capital Equipment....................... $ 23,753 23.3%
Consumer Goods.......................... 22,749 22.3
Services................................ 14,952 14.6
Finance................................. 13,370 13.1
Energy.................................. 12,289 12.0
Multi-Industry.......................... 4,481 4.4
-------- ---
$ 91,594 89.7%
-------- ---
-------- ---
</TABLE>
-----------------------
55
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (87.6%)
ARGENTINA (4.7%)
12,405 Nortel ADR....................................... $ 308
66,534 Telecom Argentina ADR............................ 1,984
110,297 Telefonica de Argentina ADR...................... 3,578
24,035 YPF ADR.......................................... 723
--------
6,593
--------
BRAZIL (7.7%)
19,393 Brahma ADR....................................... 242
22,397 CEMIG ADR........................................ 693
1,384,100 Coteminas........................................ 377
(e)12,645 Coteminas ADR.................................... 172
23,359 CVRD ADR......................................... 494
1,256,000 Encorpar ADR..................................... 3
85,000 Lightpar......................................... --
(a,d,e)14,225 Lojas Arupua ADR................................. 8
4,660,000 Pao de Acucar.................................... 105
12,056 Pao de Acucar ADR................................ 273
(e)12,340 Petrobras ADR.................................... 230
58,865 Telebras ADR..................................... 6,427
6,659,000 Telebras S.A..................................... 530
43,075 Unibanco GDR..................................... 1,271
--------
10,825
--------
CHILE (0.8%)
18,300 CCU ADR.......................................... 386
15,030 ENDESA ADR....................................... 214
18,030 Enersis S.A. ADR................................. 441
7,629 Santa Isabel ADR................................. 84
--------
1,125
--------
CHINA (0.9%)
(a)25,845 Huaneng Power International, Inc. ADR............ 347
281,000 Qingling Motors Co., 'H'......................... 78
(a)38,150 Yanzhou Coal ADR................................. 372
2,135,000 Zhenhai Refining & Chemical Co................... 276
996,000 Zhehuang Expressway Co., Ltd. 'H'................ 167
--------
1,240
--------
EGYPT (1.7%)
8,400 Al-Ahram Beverages Co. S.A.E. GDR................ 264
7,916 Ameriyah Cement Co............................... 137
26,764 Commercial International Bank.................... 295
5,157 Commercial International Bank GDR................ 56
19,920 Eastern Tobacco.................................. 357
2,000 Egypt Gas........................................ 192
11,550 Egyptian Finance & Industrial.................... 247
10,475 Helwan Portland Cement........................... 158
6,377 Industrial & Engine.............................. 104
3,200 Madinet Housing & Development.................... 153
500 Paints & Chemical Industries Co.................. 14
34,800 Paints & Chemical Industries Co. GDR............. 308
8,575 Tora H. Portland Cement.......................... 148
--------
2,433
--------
GREECE (2.1%)
(a)29,680 Hellenic Petroleum S.A........................... 243
77,096 Hellenic Telecommunication Organization S.A...... 1,979
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
2,520 National Bank of Greece.......................... $ 323
(a)8,000 STAT Hellas Telcommunications S.A. ADR........... 332
--------
2,877
--------
HONG KONG (1.5%)
147,000 China Resources Enterprises Ltd.................. 152
182,000 CLP Holdings Ltd................................. 829
646,000 Ng Fung Hong Ltd................................. 446
38,000 Shanghai Industrial Holdings Ltd................. 90
440,000 South China Morning Post......................... 212
78,000 Sun Hung Kai Properties Ltd...................... 331
--------
2,060
--------
HUNGARY (3.1%)
6,046 Gedeon Richter Ltd............................... 487
(a)3,200 Gedeon Richter Ltd. GDR.......................... 262
13,340 Matav ADR........................................ 393
67,780 Matav Rt......................................... 393
(a)85,036 MOL Magyar Olaj-es Gazipari Rt. GDR.............. 2,292
9,700 OPT Bank Rt...................................... 477
--------
4,304
--------
INDIA (7.5%)
22,000 Bajaj Auto Ltd................................... 297
199,700 Bharat Heavy Electricals Ltd..................... 1,158
12,000 Bharat Petroleum Corp., Ltd...................... 99
125,000 Container Corp. of India Ltd..................... 1,347
(e)150,000 E.I.D. Parry Ltd. GDR............................ 244
40,930 Hero Honda Motors Ltd............................ 845
504,000 Hindustan Development Corp., Ltd. GDR............ 78
16,000 Hindustan Petroleum Corp., Ltd................... 147
24,400 Hoechstshering Agrero Ltd........................ 426
29,954 Housing Development Finance Corp., Ltd........... 2,115
(e)108,750 Indo Rama Synthetics Ltd. GDR.................... 326
41,800 Infosys Technologies Ltd......................... 2,191
19,800 ITC Ltd.......................................... 304
79,200 ITW Signode India Ltd............................ 105
23,500 Larson & Tourbo Ltd., 'A'........................ 127
184,150 LG Balakrishnan Bros............................. 162
3,300 Mahanagar Telephone Nigam Ltd.................... 14
5,000 MRF Ltd.......................................... 228
(a)317,000 SIV Industries GDR............................... 127
50 State Bank of India.............................. --
302,600 Tube Investments of India Ltd. GDR............... 182
--------
10,522
--------
INDONESIA (1.0%)
(a)464,325 Gudang Garam (Foreign)........................... 274
(a)8,100 Gulf Indonesia Resources Ltd..................... 93
1,812,380 Indah Kiat Pulp & Paper Corp. Tbk................ 347
101,000 Semen Gresik..................................... 58
1,637,200 Telekomunikasi................................... 463
19,590 Telekomunikasi Indonesia ADR..................... 114
--------
1,349
--------
ISRAEL (4.8%)
(a)273,200 Bank Hapoalim Ltd................................ 826
(a)22,900 DOR Energy....................................... 165
1 Elbit Systems Ltd................................ --
68,000 First International Bank of Israel Ltd.'1'....... 106
</TABLE>
- --------------
56
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
ISRAEL (CONT.)
<TABLE>
<C> <S> <C>
109,700 First International Bank of Israel Ltd.'5'....... $ 858
17,333 Koor Industries Ltd.............................. 2,003
16,500 Koor Industries Ltd. ADR......................... 386
(a)16,712 Orbotech Ltd..................................... 608
530,700 Super Sol Ltd.................................... 1,748
--------
6,700
--------
KOREA (4.3%)
22,700 Hankuk Glass Industry Co., Ltd................... 248
(d)889 S.K. Telecom Corp................................ 402
(d)67,756 Pohang Iron & Steel Ltd. (Foreign)............... 2,221
4,340 S1 Corp.......................................... 439
85,518 Samsung Electronics Co. (Foreign)................ 2,647
(a)2,040 Samsung Electronics Co. GDS (New)................ 29
230 Samsung Fire & Marine Insurance.................. 38
--------
6,024
--------
MALAYSIA (2.8%)
20,000 Carlsberg Brewery Malaysia Bhd................... 61
257,000 Genting Bhd...................................... 464
242,000 Golden Hope Plantations Bhd...................... 222
150,000 Kuala Lumpur Kepong Bhd.......................... 242
(a)166,000 Magnum Corp. Bhd................................. 62
349,600 Malayan Banking Bhd.............................. 352
59,000 Malaysian International Shipping (Foreign)....... 86
46,000 Nestle Bhd....................................... 208
193,000 Petronas Gas Bhd................................. 358
52,000 R.J. Reynolds Bhd................................ 72
62,000 Rothmans of Pall Mall Bhd........................ 430
220,000 Technology Resources Industries.................. 151
421,000 Telekom Malaysia Bhd............................. 710
368,000 Tenaga Nasional Bhd.............................. 443
--------
3,861
--------
MEXICO (9.9%)
(a)182,279 Banacci 'B'...................................... 355
(a)193,888 Banacci 'L'...................................... 313
116,450 Bancomer 'B'..................................... 43
(a,e)16,880 Bancomer 'B' ADR................................. 124
19,527 Cemex 'B' ADR.................................... 172
307,499 Cemex CPO........................................ 1,153
39,504 Cemex CPO ADR.................................... 296
5,080 Cemex S.A. de C.V. 'B'........................... 22
(a)70,035 FEMSA............................................ 2,181
35,831 FEMSA ADR........................................ 1,129
320,177 Kimberly Clarke de Mexico 'A'.................... 1,131
97,284 Telemex ADR...................................... 4,676
(a)54,961 Televisa CPO GDR................................. 2,068
21,082 TV Azteca ADR.................................... 228
--------
13,891
--------
MOROCCO (0.1%)
2,076 Sni Maroc........................................ 199
--------
PAKISTAN (2.1%)
725,500 Fauji Fertilizer Co., Ltd........................ 783
341,000 Hub Power........................................ 93
104,644 Pakistan State Oil Co., Ltd...................... 166
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
4,778,000 Pakistan Telecommunication Co.................... $ 1,679
(a)887,397 Sui Northern Gas Pipelines....................... 167
--------
2,888
--------
PHILIPPINES (2.1%)
2,083,560 Ayala Corp....................................... 537
41,572 Ayala Land, Inc. 'B'............................. 12
173,680 Manila Electric 'B'.............................. 458
42,170 Philippine Long Distance Telephone Co............ 961
3,200 Philippine Long Distance Telephone Co. ADR....... 72
359,720 San Miguel Corp. 'B'............................. 475
2,400,940 SM Prime Holdings, Inc........................... 380
--------
2,895
--------
POLAND (2.9%)
(a)21,511 Agros Holdings S.A. 'C'.......................... 315
15,100 Bank Rozwoju Eksportu S.A........................ 409
4,836 Bank Slaski S.A.................................. 325
10,587 Bank of Handlowy W Warszawie S.A................. 202
13,000 BIG Bank Gdanski S.A. GDR........................ 253
588,000 Big Bank Inicjatyw............................... 784
(a)14,250 Debica S.A....................................... 286
(a)106,590 Elektrim S.A..................................... 1,299
(a)7,340 Exbud S.A........................................ 88
(a)71,261 Polifarb Cieszyn-Wroclaw S.A..................... 184
--------
4,145
--------
RUSSIA (5.5%)
1,040 A O Tatneft ADR.................................. 8
(a)45,838 Lukoil Holdings.................................. 392
4,760 Lukoil Oil Co. ADR............................... 158
1,184,103 Moscow Energy (Mosenergo)........................ 59
(a,d)4,570,885 Mustcom.......................................... 1,576
(e)13,260 Pliva d.d........................................ 216
(a,d)600 Storyfirst Communications........................ 1,716
62,110 Surgutneftegaz ADR............................... 248
(a,e)2,684,488 Svyaz Finance.................................... 2,148
28,160 Tatneft ADR...................................... 218
2,679,200 Unified Energy Systems........................... 347
(a)14,487 Vimpel-Communications ADR........................ 648
--------
7,734
--------
SOUTH AFRICA (7.4%)
71,950 Amalgamated Banks of South Africa................ 450
40,106 Barlow Ltd....................................... 212
50,023 Bidvest Group Ltd................................ 382
8,400 Coronation Holdings Ltd. 'N'..................... 126
130,110 Ellerine Holdings Ltd............................ 714
66,200 Forbes Group Ltd................................. 131
217,000 Illovo Sugar Ltd................................. 271
51,978 Liberty Life Association of Africa Ltd........... 1,015
113,275 Malbak Ltd....................................... 77
548,470 NBS Boland Group Ltd............................. 714
(a)864,300 New Africa Investments Ltd. 'N'.................. 927
251,540 Orion Selections Holdings Ltd.................... 425
180,390 Orion Selections Ltd............................. 224
82,400 Persetel Holdings Ltd............................ 738
57,700 Primedia Ltd..................................... 379
359,035 Protea Furnishers Ltd............................ 255
88,810 Rembrant Group Ltd............................... 555
</TABLE>
-----------------------
57
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
SOUTH AFRICA (CONT.)
183,020 Sasol Ltd........................................ $ 1,062
41,760 South African Breweries Ltd...................... 861
278,962 The Education Investment Corp., Ltd.............. 507
371,600 Woolworths Holdings Ltd.......................... 276
--------
10,301
--------
TAIWAN (5.6%)
(a)140,750 Asustek Computer, Inc............................ 1,151
(a)678,000 Chinatrust Commercial Bank....................... 669
(a)411,600 Compal Electronics, Inc.......................... 1,108
1,477,469 Far Eastern Textile Ltd.......................... 1,144
(a)211,000 Hon Hai Precision Industry....................... 1,068
(a)234,000 Kuoyang Construction............................. 368
162,000 Pesident Chain Store Corp........................ 516
(a)757,520 Siliconware Precision Industries Co.............. 1,100
(a)374,000 Taiwan Semiconductor Co.......................... 773
--------
7,897
--------
THAILAND (1.7%)
100,400 Advanced Information Services Co., Ltd.
(Foreign)...................................... 428
503,800 Bangkok Bank Co., Ltd. (Foreign)................. 621
38,200 BEC World Public Co., Ltd........................ 146
73,350 Delta Electronics Public Co., Ltd. (Foreign)..... 417
(a)75,600 Exploration & Production Public Co., Ltd.
(Foreign)...................................... 573
22,000 Lanna Lignite Public Co., Ltd.................... 15
9 National Petrochemical Public Co., Ltd........... --
55,540 Shinawatra Computer Co., Ltd. (Foreign).......... 203
(a)4,200 Siam City Cement Public Co., Ltd. (Foreign)...... 3
(a)30,300 Thai Engine Manufacturing Public Co., Ltd.
(Foreign)...................................... 11
--------
2,417
--------
TURKEY (6.7%)
3,689,600 Akbank T.A.S..................................... 119
(e)17,600 Akbank T.A.S. ADR................................ 114
10,599,494 Arcelik A.S...................................... 498
5,059,500 Ege Biracilik Ve Malt Sanayii.................... 598
2,268,000 Erciyas Biracilik Ve Malt Sanayii................ 345
(a)8,136,000 Eregli Demir Ve Celik Fabrikalari A.S............ 1,268
201,000 Migros Turk...................................... 196
1,236,000 Petrol Ofisi A.S................................. 316
3,001,000 Turk Sise ve Cam Fabrikalari A.S................. 99
8,962,500 Turkiye Is Bankasi, Class C...................... 362
(a)7,819,000 Vestel Elektronik Sanayii ve Ticaret A.S......... 1,042
171,678,821 Yapi Ve Kredi Bankasi............................ 4,384
--------
9,341
--------
VENEZUELA (0.0%)
110,412 Electricidad de Caracas.......................... 50
--------
ZIMBABWE (0.7%)
718,517 Delta Corp....................................... 471
374,200 Meikles Africa Ltd............................... 458
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
(e)327,000 Trans Zambesi Industries Ltd..................... $ 41
270,000 Trans Zambesi Industries Ltd..................... 34
--------
1,004
--------
TOTAL COMMON STOCKS (COST $156,635)..................................
122,675
--------
PREFERRED STOCKS (9.4%)
BRAZIL (NON-VOTING STOCKS) (9.4%)
105,926,574 Banco Bradesco................................... 889
(a,d,e)11,156 Banco Nacional................................... --
2,025,099 Brahma........................................... 1,261
66,941,161 CEMIG............................................ 2,084
4,646,590 CRT.............................................. 5,066
10,173 CVRD............................................. 202
(a)144,500 EBE S.A.......................................... 2
144,500 Electropaulo Metropolitana....................... 11
(a)144,500 EMAE S.A......................................... --
(a)144,500 EPTE S.A......................................... --
(a)12,437 Lojas Arapua S.A................................. 8
6,448,000 Lojas Renner S.A................................. 190
3,335,000 Petrobras........................................ 620
17,480,390 Telebras......................................... 1,901
(a)1,755,000 Telerj Celular S.A............................... 103
(d)53,661 TELESP........................................... 13
(a)8,972,661 TELESP Cellular.................................. 745
--------
13,095
--------
COLOMBIA (0.0%)
7,150 BanColombia...................................... 13
--------
TOTAL PREFERRED STOCKS (COST $16,158)................................ 13,108
--------
INVESTMENT COMPANY (0.3%)
UNITED STATES (0.3%)
(g)34,265 Morgan Stanley Africa Investment Fund, Inc. (COST
$414).......................................... 407
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- -----------------
RIGHTS (0.1%)
BRAZIL (0.0%)
(a)2,521,000 TELESP........................................... --
--------
POLAND (0.0%)
(a)15,100 Bank Rozwoju Eksportu S.A........................ 4
--------
TURKEY (0.1%)
(a,d)2,306,000 Akbank........................................... 60
(a,d)3,001,000 Turk Sise ve Cam Fabrikalari A.S................. 22
--------
82
--------
TOTAL RIGHTS (COST $155)............................................. 86
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- -----------------
WARRANTS (0.0%)
THAILAND
(a,d)111,466 Siam Commercial Bank, expiring 12/31/02 (COST
$0)............................................ --
--------
</TABLE>
- --------------
58
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE (0.0%)
SOUTH AFRICA (0.0%)
$ (a)15 Sasol Ltd. 8.50%, 12/15/2049 (COST $182)......... $ 81
--------
TOTAL FOREIGN SECURITIES (97.4%) (COST $173,544)..................... 136,357
--------
SHORT-TERM INVESTMENT (3.5%)
REPURCHASE AGREEMENT (3.5%)
4,983 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $4,984,
collateralized by $3,100 U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $5,097 (COST
$4,983)........................................ 4,983
--------
TOTAL INVESTMENTS IN SECURITIES (100.9%) (COST $178,527)............. 141,340
--------
FOREIGN CURRENCY (1.5%)
ARP 14 Argentine Peso................................... 14
BRL 221 Brazilian Real................................... 191
COP 359 Colombian Peso................................... --
HKD 180 Hong Kong Dollar................................. 23
HUF 424 Hungarian Forint................................. 2
INR 32,015 Indian Rupee..................................... 755
IDR 295,984 Indonesian Rupiah................................ 20
MYR 420 Malaysian Ringgit................................ 101
PKR 7,716 Pakistani Rupee.................................. 167
PHP 108 Philippine Peso.................................. 3
PLN 379 Polish Zloty..................................... 109
ZAR 3,141 South African Rand............................... 531
KRW 38,859 South Korean Won................................. 28
TWD 4,362 Taiwan Dollar.................................... 127
VEB 1,041 Venezuelan Bolivar............................... 2
--------
TOTAL FOREIGN CURRENCY (COST $2,088)................................. 2,073
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.4%) (COST $180,615)........................... $143,413
OTHER LIABILITIES IN EXCESS OF ASSETS (-2.4%)........................ (3,351)
--------
NET ASSETS (100%).................................................... $140,062
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
(d) -- Security valued at fair value--see note A-1 to financial statements.
(e) -- 144A Security - Certain conditions for public sale may exist.
(g) -- The Fund is advised by an affiliate which earns a management fee as
advisor to the Fund.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
-----------------------
59
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- -------------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 191 $ 191 7/1/98 BRL 221 $ 191 $ --
$ 8 8 7/2/98 IDR 120,595 8 --
$ 46 46 7/2/98 MYR 189 46 --
MYR 8,795 2,071 8/11/98 $ 2,307 2,307 236
MYR 1,170 276 8/11/98 $ 330 330 54
ZAR 11,980 1,956 9/18/98 $ 2,159 2,159 203
ZAR 1,829 291 12/23/98 $ 313 313 22
ZAR 7,388 1,174 12/24/98 $ 1,253 1,253 79
ZAR 9,156 1,463 12/28/98 $ 1,566 1,566 103
KRW 468,930 342 12/29/98 $ 308 308 (34)
ZAR 1,145 183 12/31/98 $ 188 188 5
KRW 1,196,213 865 1/4/99 $ 775 775 (90)
$ 63 63 6/21/99 ZAR 410 63 --
ZAR 11,048 1,695 6/21/99 $ 1,880 1,880 185
--------- --------- -----
$ 10,624 $ 11,387 $ 763
--------- --------- -----
--------- --------- -----
</TABLE>
- ---------------
BRL -- Brazilian Real
IDR -- Indonesian Rupiah
INR -- Indian Rupee
KRW -- South Korean Won
MYR -- Malaysian Ringgit
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SWAP AGREEMENTS:
The Portfolio had the following Total Return Swap Agreements open at June 30,
1998:
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
AMOUNT DEPRECIATION
(000) DESCRIPTION (000)
- --------- ----------------------------------------------------------------------------- -------------
<S> <C> <C>
$ 2,000 Agreement with Goldman Sachs International terminating November 3, 1998 to
pay 12 month USD-LIBOR minus 4.00% and to pay or receive the return of the
Thailand SET Index converted into USD at the mid-market rate on October 30,
1998......................................................................... $ (837)
624 Agreement with Goldman Sachs International terminating March 8, 1999 to make
quarterly payments equal to 3 month USD-LIBOR plus 2.00% and to pay or
receive quarterly payments equal to the return of the Thailand SET Index
converted into USD at the mid-market rate.................................... (95)
-------------
$ (932)
-------------
-------------
</TABLE>
- ---------------
LIBOR -- London Interbank Offer Rate
THB -- Thai Baht
USD -- U.S. Dollar
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ----------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Services $ 50,255 35.9%
Finance 22,073 15.8
Consumer Goods 20,565 14.7
Energy 14,128 10.1
Materials 12,368 8.8
Capital Equipment 12,036 8.6
Multi-Industry 4,932 3.5
--------- ---
$ 136,357 97.4%
--------- ---
--------- ---
</TABLE>
- --------------
60
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (93.7%)
AUSTRALIA (1.3%)
2,586,000 CSR Ltd.......................................... $ 7,471
893,600 Telstra Corp., Ltd............................... 2,294
--------
9,765
--------
BELGIUM (0.2%)
30,858 G.I.B. Holdings Ltd.............................. 1,741
--------
CANADA (2.6%)
94,600 Potash Corp. of Saskatchewan, Inc................ 7,123
(a)130,000 Renaissance Energy Ltd........................... 1,948
439,600 TELUS Corp....................................... 11,367
--------
20,438
--------
FINLAND (0.5%)
210,000 Valmet Oyj....................................... 3,623
--------
FRANCE (7.0%)
5,987 Bongrain S.A..................................... 3,006
62,300 Elf Aquitaine.................................... 8,757
149,900 France Telecom S.A............................... 10,336
63,600 Groupe Danone RFD................................ 17,531
166,000 Scor............................................. 10,527
(a)55,600 SGS-Thomson Microelectronics N.V................. 3,940
--------
54,097
--------
GERMANY (5.0%)
223,400 BASF AG.......................................... 10,591
215,000 Bayer AG......................................... 11,099
133,400 Veba AG.......................................... 9,098
11,000 Viag AG.......................................... 7,441
--------
38,229
--------
HONG KONG (1.0%)
2,800,000 Hysan Development Co............................. 2,313
2,808,000 Jardine Strategic Holdings Ltd................... 5,335
--------
7,648
--------
IRELAND (2.0%)
609,166 Bank of Ireland.................................. 12,461
470,000 Green Property plc............................... 3,281
--------
15,742
--------
ITALY (2.6%)
1,700,000 Mediaset S.p.A................................... 10,854
1,823,000 Telecom Italia S.p.A............................. 8,829
--------
19,683
--------
JAPAN (6.9%)
142,000 Fuji Photo Film Co............................... 4,948
911,000 Fujisawa Pharmaceutical Co., Ltd................. 8,530
335,000 Hitachi Ltd...................................... 2,187
600 Japan Tobacco, Inc............................... 4,064
260,000 KAO Corp......................................... 4,014
590,000 Matsushita Electric Industrial Co., Ltd.......... 9,492
1,320,000 Shionogi & Co.................................... 7,618
773,000 Sumitomo Marine & Fire Insurance Co.............. 4,327
110,000 TDK Corp......................................... 8,134
--------
53,314
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
NETHERLANDS (3.2%)
(a)189,800 Benckiser N.V. 'B'............................... $ 11,678
201,980 ING Groep N.V.................................... 13,232
--------
24,910
--------
NEW ZEALAND (0.4%)
1,538,300 Lion Nathan Ltd.................................. 3,421
--------
PORTUGAL (0.9%)
203,500 Cimpor-Cimentos de Portugal S.A.................. 7,153
--------
SOUTH AFRICA (0.0%)
48,200 Sasol Ltd........................................ 280
--------
SPAIN (2.5%)
610,400 Iberdrola S.A.................................... 9,911
205,745 Telefonica de Espana............................. 9,512
--------
19,423
--------
SWEDEN (1.6%)
1,722,700 Nordbanken Holding AB............................ 12,633
--------
SWITZERLAND (8.4%)
6,000 ABB AG (Bearer).................................. 8,867
1,800 Ascom Holding AG (Bearer)........................ 3,325
(a)7,890 Cie Financiere Richemont AG, Class A............. 10,333
13,100 Forbo Holdings AG (Registered)................... 6,673
9,900 Holderbank Financiere Glaris AG `B' (Bearer)..... 12,606
10,700 Nestle S.A. (Registered)......................... 22,915
--------
64,719
--------
UNITED KINGDOM (11.9%)
1,836,700 Aegis Group plc.................................. 2,975
589,700 BG plc........................................... 3,412
(a)2,746,980 BTR plc, Class B................................. 7,799
304,800 Burmah Castrol plc............................... 5,446
365,000 Danka Business Systems plc ADR................... 4,312
1,255,900 English China Clays plc.......................... 4,300
838,300 Imperial Tobacco Group plc....................... 6,188
722,500 Peninsular & Oriental Steam Navigation Co........ 10,413
811,800 Premier Farnell plc.............................. 4,121
915,500 Reckitt & Colman plc............................. 17,491
628,800 Royal & Sun Alliance Insurance Group plc......... 6,505
998,100 Wolseley plc..................................... 5,867
1,961,100 WPP Group plc.................................... 12,863
--------
91,692
--------
UNITED STATES (35.7%)
279,400 Albertson's, Inc................................. 14,476
135,900 Aluminum Co. of America.......................... 8,961
522,800 American Stores Co............................... 12,645
189,500 B.F. Goodrich Co................................. 9,404
286,200 Boise Cascade Corp............................... 9,373
239,300 Borg-Warner Automotive, Inc...................... 11,501
(a)334,998 Cadiz Land Co., Inc.............................. 3,873
220,800 Chase Manhattan Corp............................. 16,670
337,900 COMSAT Corp...................................... 9,567
(a)901,600 Data General Corp................................ 13,468
(a)535,300 Egghead, Inc..................................... 4,517
146,600 Enhance Financial Services Group, Inc............ 4,948
117,300 FINOVA Group, Inc................................ 6,642
(a)456,900 GenRad, Inc...................................... 9,024
</TABLE>
-----------------------
61
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
128,400 General Signal Corp.............................. $ 4,622
121,500 Georgia-Pacific Corp............................. 7,161
121,500 Georgia-Pacific Corp. (Timber Group)............. 2,802
385,800 Houghton Mifflin Co.............................. 12,249
200,000 IBP, Inc......................................... 3,625
182,400 MBIA, Inc........................................ 13,657
(a)255,000 NCR Corp......................................... 8,287
(a)200,900 Noble Drilling Corp.............................. 4,834
(a)201,370 Ocean Energy, Inc................................ 3,939
368,600 Penncorp Financial Group, Inc.................... 7,556
324,500 Pharmacia & Upjohn, Inc.......................... 14,968
422,700 Philip Morris Cos., Inc.......................... 16,644
99,300 Tecumseh Products Co. 'A'........................ 5,244
178,600 Tenneco, Inc..................................... 6,798
199,100 Terra Nova (Bermuda) Holdings Ltd. 'A'........... 6,247
233,500 Tupperware Corp.................................. 6,567
117,100 Unicom Corp...................................... 4,106
197,200 United Dominion Industries....................... 6,582
199,100 UST Corp......................................... 5,276
--------
276,233
--------
TOTAL COMMON STOCKS (COST $663,297)............................. 724,744
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ------------
SHORT-TERM INVESTMENTS (6.0%)
REPURCHASE AGREEMENT (6.0%)
$ 46,443 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $46,450,
collateralized by $48,898 U.S. Treasury Notes,
5.50%, due 12/31/00 valued at $48,398 (COST
$46,443)....................................... 46,443
--------
TOTAL INVESTMENT IN SECURITIES (99.7%) (COST $709,740).......... 771,187
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
FOREIGN CURRENCY (0.3%)
BEF 1,049 Belgian Franc.................................... $ 28
GBP 219 British Pound.................................... 366
FRF 1,437 French Franc..................................... 238
DEM 837 German Mark...................................... 464
HKD 2 Hong Kong Dollar................................. --
IEP 7 Irish Punt....................................... 10
ITL 403,375 Italian Lira..................................... 227
JPY 53,660 Japanese Yen..................................... 387
NLG 2 Netherlands Guilder.............................. 1
NZD 105 New Zealand Dollar............................... 55
ESP 1,175 Spanish Peseta................................... 8
SEK 1 Swedish Krona.................................... --
CHF 569 Swiss Franc...................................... 375
--------
TOTAL FOREIGN CURRENCY (COST $2,174)............................ 2,159
--------
TOTAL INVESTMENTS (100.0%) (COST $711,914)...................... 773,346
LIABILITIES IN EXCESS OF OTHER ASSETS (0.0%).................... (37)
--------
NET ASSETS (100%)............................................... $773,309
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
RFD -- Ranked for Dividend
ADR -- American Depositary Receipt
- --------------
62
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ----------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 752 $ 752 7/1/98 GBP 451 $ 754 $ 2
$ 244 243 7/1/98 ZAR 1,435 242 (1)
GBP 6,600 10,915 12/16/98 $ 10,850 10,850 (65)
--------- --------- ---
$ 11,910 $ 11,846 $ (64)
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------
GBP -- British Pounds
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Capital Equipment................................................................ $ 177,354 22.9%
Services......................................................................... 140,324 18.2
Consumer Products................................................................ 139,424 18.0
Finance.......................................................................... 126,276 16.3
Materials........................................................................ 68,631 8.9
Energy........................................................................... 35,397 4.6
Diversified Operations........................................................... 30,762 4.0
Gold Mines....................................................................... 3,874 0.5
Consumer Staples................................................................. 2,702 0.3
--------- ---
$ 724,744 93.7%
--------- ---
--------- ---
</TABLE>
-----------------------
63
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (80.1%)
AUSTRALIA (0.0%)
1,698 Broken Hill Proprietary Ltd...................... $ 14
460 Coles Myer Ltd................................... 2
595 Gio Australia Holdings Ltd....................... 2
651 MIM Holdings Ltd................................. --
16 Westfield Trust.................................. --
(a)755 Westfield Trust (New)............................ 1
--------
19
--------
AUSTRIA (0.8%)
600 Austria Mikro Systems International AG........... 41
2,900 Austrian Airlines Osterreichische Luftverkehrs
AG............................................. 96
13,128 Bank Austria AG.................................. 1,068
800 Bau Holdings AG.................................. 45
2,100 Boehler-Udderholm AG............................. 139
300 BWT AG........................................... 64
2,000 Creditanstalt-Bankverein......................... 213
1,100 Creditanstalt-Bankverein: Vorzu.................. 119
4,600 Flughafen Wein AG................................ 221
1,000 Generali AG...................................... 294
(a)700 Lenzing AG....................................... 54
2,300 Mayr-Melnhof Karton AG........................... 150
1,100 Oesterreichische Brau-Beteiligungs AG............ 65
5,600 Oesterreichish Elektrizitaets, 'A'............... 670
4,300 OMV AG........................................... 576
2,600 Radex-Heraklith Industriebet AG.................. 126
1,900 Steyr-Daimler-Puch AG............................ 52
2,300 VA Technologies AG............................... 286
1,600 Wienerberger Baustoffindustrie AG................ 387
--------
4,666
--------
BELGIUM (0.1%)
6,000 Kredietbank N.V.................................. 537
--------
CANADA (2.8%)
9,800 Abitibi-Consolidated, Inc........................ 126
8,000 Agrium, Inc...................................... 100
(a)8,100 Air Canada....................................... 72
13,900 Alcan Aluminum Ltd............................... 383
3,700 Avenor, Inc...................................... 86
14,300 Bank of Montreal................................. 787
26,000 Bank of Nova Scotia.............................. 643
22,900 Barrick Gold Corp................................ 436
8,500 Barrick Gold Corp................................ 163
34,000 BCE, Inc......................................... 1,441
17,500 Bombardier, Inc., 'A'............................ 476
7,400 CAE, Inc......................................... 63
3,100 Cameco Corp...................................... 86
22,400 Canadian Imperial Bank of Commerce............... 720
1,976 Canadian National Railway Co..................... 105
5,600 Canadian Natural Resources Ltd................... 96
8,600 Canadian Occidental Petroleum Ltd................ 183
18,800 Canadian Pacific Ltd............................. 529
5,000 Canadian Tire Corp., 'A'......................... 145
4,500 Cominco Ltd...................................... 67
(a)4,000 Corel Corp....................................... 8
3,200 Cott Corp........................................ 23
5,500 Dofasco, Inc..................................... 90
8,800 Domtar, Inc...................................... 59
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
(a)8,600 Echo Bay Mines Ltd............................... $ 18
7,500 George Weston Ltd................................ 265
(a)13,400 Gulf Canada Resources Ltd........................ 66
23,200 Imasco Ltd....................................... 428
27,300 Imperial Oil Ltd................................. 477
8,600 Inco Ltd......................................... 117
3,200 IPL Energy, Inc.................................. 144
11,500 Laidlaw, Inc..................................... 140
15,800 Laidlaw, Inc. 'B'................................ 191
3,800 Loewen Group, Inc................................ 102
8,500 MacMillan Bloedel Ltd............................ 91
3,900 Magna International, Inc., 'A'................... 267
(a)9,500 Methanex Corp.................................... 83
4,400 Molson Companies Ltd., 'A'....................... 80
6,100 Moore Corp., Ltd................................. 81
(a)8,200 Newbridge Networks Corp.......................... 196
13,300 Noranda, Inc..................................... 230
25,600 Northern Telecom Ltd............................. 1,451
29,700 Nova Corp........................................ 340
16,000 Petro............................................ 257
11,600 Placer Dome, Inc................................. 135
3,000 Potash Corp. of Saskatchewan, Inc................ 226
7,100 Power Corp. of Canada............................ 333
(a)7,200 Provigo, Inc..................................... 44
(a)7,400 Ranger Oil Ltd................................... 53
(a)7,100 Renaissance Energy Ltd........................... 106
(a)9,600 Rogers Communication, Inc., 'B'.................. 85
16,900 Royal Bank of Canada............................. 1,016
19,300 Seagram Co., Ltd................................. 786
(a)4,400 Suncor, Inc...................................... 149
(a)7,200 Talisman Energy, Inc............................. 206
4,700 Teck Corp., 'B'.................................. 51
5,800 TELUS Corp....................................... 150
31,500 Thomson Corp..................................... 914
13,100 Transcanada Pipelines Ltd........................ 290
6,700 Westcoast Energy, Inc............................ 149
--------
16,604
--------
DENMARK (0.2%)
2,000 BG Bank A/S...................................... 124
3,800 Den Danske Bank Corp............................. 456
600 Jyske Bank A/S (Registered)...................... 71
3,800 Unidanmark A/S 'A' (Registered).................. 342
--------
993
--------
FRANCE (3.0%)
2,677 Accor S.A........................................ 749
3,406 Alcatel Alsthom.................................. 693
7,182 AXA S.A.......................................... 808
6,925 Banque Nationale de Paris........................ 566
4,591 Banque Paribas................................... 491
1,337 BIC Corp......................................... 95
613 Bouygues......................................... 111
761 Canal Plus....................................... 142
4,763 Cap Gemini S.A................................... 748
875 Carrefour S.A.................................... 554
1,948 Cie de Saint-Gobain.............................. 361
751 Credit Commercial de France...................... 63
383 Dexia France..................................... 52
5,759 Elf Aquitaine.................................... 810
2,474 Elf Sanofi S.A................................... 291
</TABLE>
- --------------
64
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FRANCE (CONT.)
<TABLE>
<C> <S> <C>
697 Eridania Beghin-Say S.A.......................... $ 154
256 Essilor International............................ 108
3,633 Etablissements Economiques du Casino
Guichard-Perrachon............................. 290
18,547 France Telecom S.A............................... 1,279
1,768 Groupe Danone RFD................................ 487
1,650 Havas S.A........................................ 140
375 Imetal S.A....................................... 52
2,430 Klepierre........................................ 472
2,167 L'air Liquide.................................... 358
1,441 L'Oreal.......................................... 801
2,277 Lafarge S.A...................................... 235
(a)71 Lafarge S.A...................................... 7
2,484 Lagardere S.C.A.................................. 103
698 Legrand S.A...................................... 185
1,965 LVMH Moet Hennessy Louis Vuitton................. 393
2,807 Lyonnaise des Eaux S.A........................... 462
2,750 Michelin (C.G.D.E.) 'B'.......................... 159
193 Pathe S.A........................................ 38
1,540 Pernod-Ricard.................................... 107
486 Pinault S.A...................................... 407
434 Promodes......................................... 240
1,176 PSA Peugeot Citroen S.A.......................... 253
7,548 Rhone-Poulenc S.A. 'A'........................... 426
111 Sagem............................................ 86
2,989 Schneider S.A.................................... 238
(a)1,917 Silic............................................ 349
6,256 Simco S.A. (Registered).......................... 513
88 Societe Eurafrance S.A........................... 55
3,218 Societe Generale................................. 669
13 Sodexho Alliance S.A............................. 3
(a)676 Sodexho S.A...................................... 128
6,120 Sophia S.A....................................... 283
2,745 Thomson CSF S.A.................................. 104
5,431 Total S.A. 'B'................................... 706
3,620 Unibail.......................................... 468
5,699 Usinor Sacilor................................... 88
1,494 Valeo S.A........................................ 153
2,822 Vivendi.......................................... 602
--------
18,135
--------
GERMANY (3.3%)
1,183 Adidas AG........................................ 205
(a)900 Agiv AG.......................................... 25
(a)292 Allianz AG....................................... 95
5,550 Allianz AG....................................... 1,831
483 AMB Aachener & Muenchener Beteiligungs AG........ 56
2,000 Bankgesellschaft Berlin AG....................... 42
14,150 BASF AG.......................................... 671
17,550 Bayer AG......................................... 906
8,100 Bayer Hypothecen-und Wechsel-Bank AG............. 514
9,550 Bayer Vereinsbank AG............................. 813
533 Beiersdorf AG.................................... 34
800 BHF-Bank AG...................................... 30
2,400 Bilfinger & Berger Bau AG........................ 82
183 Brau und Brunnen AG.............................. 24
967 CKAG Colonia Konzern AG.......................... 120
3,900 Commerzbank AG................................... 149
2,033 Continental AG................................... 63
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
16,100 Daimler-Benz AG.................................. $ 1,580
2,383 Degussa AG....................................... 147
18,450 Deutsche Bank AG................................. 1,564
55,187 Deutsche Telekom AG.............................. 1,490
15,167 Dresdner Bank AG................................. 818
1,253 Heidelberger Zement AG........................... 119
2,433 Hochtief AG...................................... 117
800 IKB Deutsche Industriebank AG.................... 16
250 Karstadt AG...................................... 121
1,267 Kloeckner-Humboldt-Deutz AG...................... 15
283 Linde AG......................................... 198
8,700 Lufthansa AG..................................... 219
350 MAN AG........................................... 136
9,170 Mannesmann AG.................................... 931
4,290 Merck KGAA....................................... 192
5,557 Metro AG......................................... 337
1,947 Muenchener Rueckversicherungs-Gesellschaft AG
(Registered)................................... 966
450 Preussag AG...................................... 161
12,204 RWE AG........................................... 724
1,477 SAP AG........................................... 897
1,900 Schering AG...................................... 224
13,233 Siemens AG....................................... 806
100 STRABAG AG....................................... 9
867 Thyssen AG....................................... 220
12,283 VEBA AG.......................................... 838
695 Viag AG.......................................... 470
748 Volkswagen AG.................................... 719
--------
19,694
--------
HONG KONG (0.0%)
139 Bank of East Asia................................ --
700 Cathay Pacific Airways Ltd....................... --
1,600 Hong Kong & China Gas Co., Ltd................... 2
12,643 Hong Kong Land Holdings Ltd...................... 16
500 Hong Kong Shanghai Hotels........................ --
200 Hopewell Holdings Ltd............................ --
1,400 Hutchison Whampoa Ltd............................ 7
400 Johnson Electric Holdings Ltd.................... 1
1,300 New World Development Co., Ltd................... 3
1,000 Regal Hotel International........................ --
7,593 Sino Land Co..................................... 3
2,400 South China Morning Post......................... 1
1,340 Sun Hung Kai Properties Ltd...................... 6
200 Swire Pacific Ltd. 'A'........................... 1
500 Television Broadcasting Ltd...................... 1
800 Varitronix International Ltd..................... 2
--------
43
--------
IRELAND (0.1%)
46,700 Allied Irish Banks plc........................... 676
--------
ITALY (4.0%)
76,176 Assicurazioni Generali S.p.A..................... 2,478
128,300 Banca Commerciale Italiana....................... 768
20,000 Banca Fideuram................................... 114
10,000 Banca Intesa S.p.A............................... 29
1,000 Banca Popolare di Bergamo Credito Varesino
S.p.A.......................................... 21
75,000 Banca di Roma.................................... 156
60,900 Banco Ambrosiano Veneto.......................... 341
</TABLE>
-----------------------
65
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
ITALY (CONT.)
<TABLE>
<C> <S> <C>
4,000 Banco Popolare Milano............................ $ 32
40,000 Banco di Napoli.................................. 51
133,800 Benetton Group S.p.A............................. 278
11,700 Burgo Cartiere S.p.A............................. 94
(a)418,700 Ciga Spa......................................... 487
218,500 Credito Italiano S.p.A........................... 1,144
48,000 Edison S.p.A..................................... 385
568,000 Ente Nazionale Idrocarburi S.p.A................. 3,724
9,500 Falck Acciaierie & Ferriere Lombarde............. 61
239,630 Fiat S.p.A....................................... 1,049
52,970 Fiat S.p.A. Di Risp NCS.......................... 131
85,200 Immobiliare Metanopoli S.p.A..................... 94
(a)26,000 Impreglio S.p.A.................................. 23
74,600 Istituto Bancario San Paolo di Torina S.p.A...... 1,077
53,950 Istituto Mobiliare Italiano S.p.A................ 850
500,720 Istituto Nazionale delle Assicurazioni (INA)..... 1,423
11,650 Italcementi S.p.A. RNC........................... 51
17,300 Italcementi S.p.A................................ 156
49,400 Italgas.......................................... 201
16,878 La Rinascente S.p.A.............................. 168
36,500 Magneti Marelli S.p.A............................ 80
86,000 Mediaset S.p.A................................... 549
51,260 Mediobanca S.p.A................................. 651
208,108 Montedison S.p.A................................. 258
68,900 Montedison S.p.A. Di Risp NCS.................... 53
(a)252,880 Olivetti Group................................... 376
114,640 Parmalat Finanziaria S.p.A....................... 234
115,000 Pirelli S.p.A.................................... 359
22,269 R.A.S............................................ 290
462 R.A.S. di Risp................................... 4
250 S.A.I............................................ 2
10,100 S.A.I............................................ 129
(a)12,000 Sasib S.p.A...................................... 54
22,000 Sirti S.p.A...................................... 120
51,000 Snia BPD S.p.A................................... 63
470,300 Telecom Italia Mobile S.p.A...................... 2,877
110,000 Telecom Italia Mobile S.p.A. RNC................. 371
68,663 Telecom Italia S.p.A. RNC........................ 333
255,388 Telecom Italia S.p.A............................. 1,881
--------
24,070
--------
JAPAN (4.8%)
28,800 Ajinomoto Co., Inc............................... 252
(a)30,800 Aoki Corp........................................ 15
500 Asahi Bank Ltd................................... 2
19,000 Asahi Breweries Ltd.............................. 240
59,400 Asahi Chemical Industry Co., Ltd................. 214
53,600 Asahi Glass Co................................... 290
91,600 Bank of Tokyo-Mitsubishi Ltd..................... 971
500 Bank of Yokohama................................. 1
19,000 Bridgestone Corp................................. 450
23,800 Canon, Inc....................................... 541
11,000 Casio Computer Co., Ltd.......................... 102
800 Chiba Bank Ltd................................... 3
18,800 Chugai Pharmaceutical Ltd........................ 123
23,800 Dai Nippon Printing Co., Ltd..................... 380
18,800 Daiei, Inc....................................... 44
18,800 Daikin Industries Ltd............................ 121
18,800 Daiwa House Industry............................. 166
20,600 Denso Corp....................................... 342
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
114 East Japan Railway Co............................ $ 536
13,800 Ebara Corp....................................... 123
8,300 Fanuc Co......................................... 287
11,000 Fuji Photo Film Co............................... 383
45,600 Fujitsu Ltd...................................... 480
13,800 Furukawa Electric................................ 46
23,000 Hankyu Corp...................................... 94
(a)18,000 Hazama-Gumi...................................... 10
98,000 Hitachi Ltd...................................... 640
23,000 Honda Motor Co................................... 820
12,000 Ito-Yokado Co., Ltd.............................. 565
(a)61,000 Japan Airlines Co., Ltd.......................... 170
43,600 Japan Energy Corp................................ 46
800 Joyo Bank........................................ 3
8,800 Jusco Co......................................... 162
23,800 KAO Corp......................................... 367
35,600 Kajima Corp...................................... 98
25,900 Kansai Electric Power Co......................... 450
28,600 Kawasaki Steel Corp.............................. 52
41,600 Kinki Nippon Railway............................. 195
38,600 Kirin Brewery Co., Ltd........................... 365
34,600 Komatsu Ltd...................................... 168
51,400 Kubota Corp...................................... 119
(a)60,600 Kumagai Gumi Co., Ltd............................ 44
5,500 Kyocera Corp..................................... 269
16,800 Kyowa Hakko Kogyo................................ 67
46,000 Long-Term Credit Bank of Japan Ltd............... 27
50,200 Marubeni Corp.................................... 100
4,800 Marui Co., Ltd................................... 72
51,400 Matsushita Electric Industrial Co., Ltd.......... 827
59,000 Mitsubishi Chemical Corp......................... 107
51,000 Mitsubishi Corp.................................. 316
67,400 Mitsubishi Electric Corp......................... 155
106,000 Mitsubishi Heavy Industries Ltd.................. 401
34,600 Mitsubishi Materials Corp........................ 71
26,000 Mitsubishi Trust and Banking Corp................ 221
51,200 Mitsui & Co...................................... 277
(a)37,600 Mitsui Engineering & Shipbuilding Co., Ltd....... 29
400 Mitsui Trust & Banking Co., Ltd.................. 1
17,800 Mitsukoshi....................................... 51
12,800 Mycal Corp....................................... 81
32,600 NEC Corp......................................... 304
38,600 New OJI Paper Co., Ltd........................... 168
18,800 NGK Insulators Ltd............................... 163
15,000 Nippon Express Co., Ltd.......................... 81
16,800 Nippon Fire & Marine Insurance Co................ 69
16,800 Nippon Light Metal Co............................ 19
16,800 Nippon Meat Packers, Inc......................... 206
54,600 Nippon Oil Co.................................... 177
216,000 Nippon Steel Corp................................ 380
292 Nippon Telegraph & Telephone Corp. ADR........... 2,423
51,400 Nippon Yusen Kabushiki Kaisha.................... 174
350 Nissan Fire & Marine Insurance Co., Ltd.......... 1
65,400 Nissan Motor Co., Ltd............................ 206
114,000 NKK Corp......................................... 109
20,800 Odakyu Electric Railway Co....................... 64
82,200 Osaka Gas Co..................................... 211
16,800 Penta-Ocean Construction......................... 39
5,000 Pioneer Electronic Corp.......................... 96
2,000 Rohm Co.......................................... 206
</TABLE>
- --------------
66
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
66,200 Sakura Bank Ltd.................................. $ 172
14,800 Sankyo Co., Ltd.................................. 337
61,000 Sanwa Bank Ltd................................... 546
51,400 Sanyo Electric Co., Ltd.......................... 156
4,800 Secom Co......................................... 277
3,900 Sega Enterprises Ltd............................. 67
18,800 Sekisui House Ltd................................ 146
34,600 Sharp Corp....................................... 281
5,000 Shimano, Inc..................................... 127
27,800 Shimizu Corp..................................... 80
7,000 Shin-Etsu Chemical Co............................ 121
7,000 Shiseido Co., Ltd................................ 80
800 Shizuoka Bank.................................... 9
34,600 Showa Denko K.K.................................. 35
700 Softbank Corp.................................... 27
8,900 Sony Corp........................................ 767
69,200 Sumitomo Chemical Co............................. 214
36,400 Sumitomo Corp.................................... 175
25,800 Sumitomo Electric Industries..................... 261
70,400 Sumitomo Metal Industries........................ 113
18,000 Sumitomo Metal Mining Co......................... 73
17,800 Sumitomo Osaka Cement Co., Ltd................... 23
38,600 Taisei Corp., Ltd................................ 84
11,000 Taisho Pharmaceutical Co......................... 206
21,000 Taiyo Yuden Co., Ltd............................. 224
23,800 Takeda Chemical Industries....................... 634
38,600 Teijin Ltd....................................... 117
23,800 Tobu Railway Co.................................. 63
13,500 Tohoku Electric Power............................ 199
600 Tokai Bank....................................... 3
59,400 Tokio Marine & Fire Insurance Co................. 611
32,500 Tokyo Electric Power Co.......................... 638
2,000 Tokyo Electron Ltd............................... 61
77,200 Tokyo Gas Co..................................... 172
28,800 Tokyu Corp....................................... 87
23,800 Toppan Printing Co., Ltd......................... 255
58,500 Toray Industries, Inc............................ 304
17,800 Toto Ltd......................................... 108
38,600 Toyobo Ltd....................................... 51
77,000 Toyota Motor Corp................................ 1,994
34,600 Ube Industries Ltd............................... 45
300 Yamaichi Securities.............................. --
19,000 Yokogawa Electric Corp........................... 101
--------
28,692
--------
NETHERLANDS (4.1%)
83,307 ABN Amro Holding N.V............................. 1,950
4,200 Akzo Nobel N.V................................... 934
29,800 Elsevier N.V..................................... 450
4,106 Getronics........................................ 213
15,313 Heineken N.V..................................... 602
57,176 ING Groep N.V.................................... 3,746
4,039 KLM Royal Dutch Airlines N.V..................... 164
25,874 Koninklijke Ahold N.V............................ 831
287 Koninklijke Hoogovens............................ 12
5,300 Koninklijke KNP BT N.V........................... 137
27,847 Koninklijke PTT Nederland N.V.................... 1,072
1,200 Nedlloyd Groep N.V............................... 24
1,656 Oce N.V.......................................... 71
(a)1,100 Oce N.V.......................................... 47
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
17,600 Phillips Electronics N.V......................... $ 1,480
(a)22,700 Rodamco N.V...................................... 623
107,400 Royal Dutch Petroleum............................ 5,958
33,600 Royal Dutch Petroleum Co., New York Shares....... 1,842
2,318 Stork N.V........................................ 74
(a)27,847 TNT Post Group N.V............................... 712
32,900 Uni-Invest N.V................................... 477
32,100 Unilever N.V..................................... 2,548
3,664 Wolters Kluwer N.V............................... 503
--------
24,470
--------
NORWAY (0.3%)
(a)121,900 Choice Hotels Scandinavia S.A.................... 366
64,000 Christiania Bank OG Kreditkasse.................. 268
74,100 Den Norske Bank ASA.............................. 389
100 Hafslund ASA 'A'................................. --
(a)68,540 Linstow ASA...................................... 492
(a)33 NCL Holdings ASA................................. --
100 Norsk Hydro ASA.................................. 4
(a)200 Storebrand ASA................................... 2
--------
1,521
--------
PORTUGAL (1.3%)
38,742 Banco Comercial (Registered)..................... 1,101
18,620 Banco Espirito Santo............................. 559
12,300 Banco Totta & Acores 'B' (Registered)............ 373
16,300 BPI-SGPS S.A. (Registered)....................... 526
1,300 Cia de Seguros Tranquilidade (Registered)........ 35
13,500 Cimpor-Cimentos de Portugal S.A.................. 474
700 CIN S.A.......................................... 52
3,100 Corticeira Amorim, S.A........................... 60
59,500 EDP-Electricidade de Portugal, S.A............... 1,384
1,000 Engil-SGPS....................................... 11
2,600 INAPA, S.A....................................... 34
(a)18,450 Jeronimo Martins, SGPS, S.A...................... 887
14,600 Portucel Industrial-Empresa Produtora de Celulose
S.A............................................ 116
30,500 Portugal Telecom S.A............................. 1,617
(a)2,000 Sociedade de Construcoes Soares da Costa S.A..... 17
6,700 Sonae Investimentos S.A.......................... 366
1,900 UNICER-Uniao Cervejeira S.A...................... 42
--------
7,654
--------
SPAIN (3.2%)
840 Acerinox S.A..................................... 112
(a)297 ACS S.A.......................................... 9
(a)41 Aguas de Barcelona............................... 2
45,280 Argentaria S.A................................... 1,016
16,742 Autopistas Concesionaria Espanola S.A............ 259
3,300 Azucarere Ebro Agricolas S.A..................... 98
59,200 Banco Bilbao Vizcaya, S.A. (Registered).......... 3,038
(a)7,200 Banco Espanol de Credito S.A..................... 86
1,400 Banco Popolar Espanol S.A........................ 120
94,000 Banco Santander S.A.............................. 2,406
400 Bankinter S.A.................................... 26
29,800 BCH S.A.......................................... 937
1,000 Corporacion Financiera Alba S.A.................. 110
3,898 Corporacion Mapfre............................... 137
3,850 Dragados y Construcciones S.A.................... 123
</TABLE>
-----------------------
67
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
SPAIN (CONT.)
<TABLE>
<C> <S> <C>
1,450 Empresa Nacional de Cellulosas S.A............... $ 26
81,600 Endesa S.A....................................... 1,785
317 Energia y Industrias Aragonesas.................. 3
(a)11,600 Ercros S.A....................................... 15
4,000 Fomento de Construcciones y Contratas S.A........ 206
11,200 Gas Natural SDG S.A. 'E'......................... 809
3,335 General de Aguas De Barcelona S.A................ 186
73,000 Iberdrola S.A.................................... 1,185
3,202 Immobiliaria Metropolitana Vasco Central S.A..... 94
500 Portland Valderrivas S.A......................... 61
23,800 Repsol S.A....................................... 1,312
(a)12,500 Tabacalera S.A. 'A'.............................. 256
76,054 Telefonica de Espana............................. 3,516
(a)3,145 Telefonica de Espana............................. 146
19,900 Union Electrica Fenosa S.A....................... 256
4,500 Uralita S.A...................................... 64
15,396 Vallehermoso S.A................................. 566
1,550 Viscofan Industria Navarra de Envolturas
Celulosicas S.A................................ 72
4,363 Zardoya-Otis S.A................................. 130
--------
19,167
--------
SWEDEN (1.6%)
21,300 ABB AB 'A'....................................... 302
8,900 ABB AB 'B'....................................... 124
5,100 AGA AB 'A'....................................... 80
(a)45,600 Asticus AB....................................... 503
42,366 Astra AB 'A'..................................... 866
10,300 Astra AB 'B'..................................... 205
4,250 Atlas Copco AB 'A'............................... 116
2,100 Atlas Copco AB 'B'............................... 57
14,000 Castellum AB..................................... 165
55,400 Diligentia AB.................................... 479
12,500 Electrolux AB 'B'................................ 215
600 Esselte AB 'B'................................... 14
10,900 Fastighets AB Tornet............................. 175
100 Granges AB....................................... 2
6,700 Hennes & Mauritz AB 'B'.......................... 427
(a)3,500 NetCom Systems AB 'B'............................ 134
37,100 Nordbanken Holding AB............................ 272
14,800 Piren AB......................................... 117
6,000 Sandvik AB 'A'................................... 166
2,500 Sandvik AB 'B'................................... 69
8,100 SCA AB 'B'....................................... 210
2,900 Securitas AB 'B'................................. 142
(a)17,000 Skandia Forsakrings AB........................... 243
36,200 Skandinaviska Enskilda Banken 'A'................ 619
4,000 Skanska AB 'B'................................... 179
3,000 SKF AB 'B'....................................... 55
20,700 Sparbanken Sverige AB 'A'........................ 623
10,450 Stora Kopparbergs Bergslags Aktiebolag........... 164
13,400 Svenska Handelsbanken 'A'........................ 622
600 Svenska Handelsbanken 'B'........................ 26
3,400 Svenskt Stal AB 'A'.............................. 52
60,400 Telefonaktiebolaget LM Ericsson.................. 1,764
4,500 Trelleborg AB 'B'................................ 59
500 Volvo AB 'A'..................................... 15
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
14,000 Volvo AB 'B'..................................... $ 417
2,400 Wm-Data Ab 'B'................................... 83
--------
9,761
--------
SWITZERLAND (3.9%)
415 ABB AG (Bearer).................................. 613
770 Adecco S.A. (Bearer)............................. 348
240 Alusuisse-Lonza Holding AG (Registered).......... 305
80 Banca del Gottardo 'B'........................... 58
40 Banque Cantonale Vaudoise........................ 16
10,450 CS Holding AG (Registered)....................... 2,327
225 Georg Fischer AG (Registered).................... 88
285 Holderbank Financiere Glarus AG (Bearer)......... 363
1,655 Nestle S.A. (Registered)......................... 3,544
2,696 Novartis AG (Registered)......................... 4,489
69 Roche Holding AG (Bearer)........................ 1,023
293 Roche Holding AG-Genusshein...................... 2,879
325 Sairgroup (Registered)........................... 107
610 Schweizerische Rueckver (Registered)............. 1,544
80 SGS Societe Generale de Surveillance Holding S.A.
(Bearer)....................................... 136
215 SMH AG (Bearer).................................. 166
170 Sulzer AG (Registered)........................... 134
450 SwissAir AG (Registered)......................... 148
(a)8,594 UBS AG (Registered).............................. 3,198
1,070 Union Bank of Switzerland (Registered)........... 386
275 Valora Holding AG (Registered)................... 73
60 Vontobel Holding AG 'B'.......................... 87
2,005 Zuerich Versicherungs-Gesellschaft
(Registered)................................... 1,280
--------
23,312
--------
UNITED KINGDOM (9.1%)
52,400 Abbey National plc............................... 932
26,150 Arjo Wiggins Appleton plc........................ 88
18,725 Associated British Foods plc..................... 177
70,289 Barclays plc..................................... 2,028
36,717 Bass plc......................................... 689
115,891 B.A.T Industries plc............................. 1,161
145,190 BG plc........................................... 840
26,177 BICC plc......................................... 56
49,451 Blue Circle Industries plc....................... 280
26,105 BOC Group plc.................................... 356
41,125 Boots Co. plc.................................... 682
26,150 BPB Industries plc............................... 159
74,772 British Aerospace plc............................ 573
44,903 British Airways plc.............................. 486
59,930 British Land Co. plc............................. 616
218,658 British Petroleum Co. plc........................ 3,192
59,825 British Sky Broadcasting Group plc............... 430
74,800 British Steel plc................................ 165
216,950 British Telecommunications plc................... 2,681
127,648 BTR plc, 'B'..................................... 362
11,156 Burmah Castrol plc............................... 199
93,487 Cable & Wireless plc............................. 1,137
41,160 Cadbury Schweppes plc............................ 638
72,300 Capital Shopping Centers plc..................... 487
28,530 Caradon plc...................................... 88
(a)164,550 Centrica plc..................................... 278
33,646 Coats Viyella plc................................ 41
26,106 Commercial Union plc............................. 487
</TABLE>
- --------------
68
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
18,725 Courtaulds plc................................... $ 139
3,722 De La Rue plc.................................... 18
126,724 Diageo plc....................................... 1,503
19,947 Diageo plc, 'B'.................................. 167
(a)29,175 Elementis plc.................................... 74
24,590 EMI Group plc.................................... 215
1 Energy Group plc................................. --
108,475 General Electric plc............................. 936
(a)44,734 GKN plc.......................................... 570
119,675 Glaxo Wellcome plc............................... 3,595
26,140 Granada Group plc................................ 481
158,400 Grantchester Holdings plc........................ 452
44,875 Great Universal Stores plc....................... 592
(a)28,470 Guardian Royal Exchange plc...................... 167
22,443 Hanson plc....................................... 137
89,470 HSBC Holdings plc................................ 2,170
3,400 HSBC Holdings plc................................ 86
33,675 Imperial Chemical Industries plc................. 541
44,888 Ladbroke Group plc............................... 247
70,325 Land Securities plc.............................. 1,088
29,925 Lasmo plc........................................ 120
44,875 Legal & General Group plc........................ 479
227,075 Lloyds TSB Group plc............................. 3,180
(a)7,485 Lonrho Africa plc................................ 9
(a)7,485 Lonrho Africa plc................................ 35
130,875 Marks & Spencer plc.............................. 1,192
22,475 MEPC plc......................................... 198
52,400 National Power plc............................... 494
6,800 National Westminster Bank plc.................... 122
30,693 Peninsular & Oriental Steam Navigation Co........ 442
56,053 Pilkington plc................................... 103
74,809 Prudential Corp. plc............................. 986
34,463 Rank Group plc................................... 189
51,925 Reed International plc........................... 470
55,120 Reuters Holdings plc............................. 631
22,475 Rexam plc........................................ 98
45,035 Rio Tinto Corp. plc (Registered)................. 508
11,200 RMC Group plc.................................... 194
52,412 Royal & Sun Alliance Insurance Group plc......... 542
4,800 Royal Bank of Scotland Group plc................. 54
22,079 Royal Bank of Scotland plc....................... 383
33,640 Safeway plc...................................... 220
59,797 Sainsbury (J) plc................................ 533
11,175 Schroders plc.................................... 289
37,418 Scottish Power plc............................... 328
74,800 Sears plc........................................ 66
22,726 Sedgwick Group plc............................... 49
18,725 Slough Estates plc............................... 107
192,871 SmithKline Beecham plc........................... 2,356
18,701 Southern Electric plc............................ 169
3,900 Standard Chartered plc........................... 44
52,385 Tarmac plc....................................... 94
29,879 Taylor Woodrow plc............................... 100
71,067 Tesco plc........................................ 694
26,194 Thames Water plc................................. 477
17,463 Thorn plc........................................ 71
18,691 TI Group plc..................................... 142
2,000 Unilever N.V. - New York Shares.................. 158
107,150 Unilever plc..................................... 1,142
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
26,148 United Utilities plc............................. $ 381
123,417 Vodafone Group plc............................... 1,567
382,300 Wates City of London Properties plc.............. 626
33,675 Zeneca Group plc................................. 1,446
--------
53,974
--------
UNITED STATES (37.5%)
100 AAR Corp......................................... 3
12,600 Abbott Laboratories.............................. 515
(a)1,000 Access Health, Inc............................... 25
(a)1,900 AccuStaff, Inc................................... 59
(a)900 Action Performance Cos., Inc..................... 29
(a)1,300 ACX Technologies, Inc............................ 28
4,300 Adobe Systems, Inc............................... 182
(a)1,700 Advanced Fibre Communications, Inc............... 68
(a)2,400 Advanced Lighting Technologies, Inc.............. 56
6,500 Aeroquip-Vickers, Inc............................ 379
(a)1,500 Affiliated Computer Services, Inc., 'A'.......... 58
1,700 A.H. Ahmanson & Co............................... 121
3,500 A.H. Belo Corp., 'A'............................. 85
100 Air Express International Corp................... 3
3,200 Air Products & Chemicals, Inc.................... 128
3,000 Airborne Freight Corp............................ 105
(a)7,300 Airtouch Communications, Inc..................... 427
2,200 Albany International Corp,. 'A'.................. 53
1,300 Albertson's, Inc................................. 67
500 Alcan Aluminum Ltd............................... 14
12,700 Allegheny Teledyne, Inc.......................... 291
12,000 Allied Signal, Inc............................... 532
(a)1,700 Allied Waste Industries, Inc..................... 41
2,000 Allmerica Financial Corp......................... 130
15,800 Allstate Corp.................................... 1,447
15,900 Alltel Corp...................................... 739
1,400 Alumax, Inc...................................... 65
8,500 Aluminum Co. of America.......................... 560
(a)2,300 Alza Corp., 'A'.................................. 99
3,300 AMBAC Financial Group, Inc....................... 193
800 AmerUs Life Holdings, Inc. 'A'................... 26
(a)3,200 AmeriCredit Corp................................. 114
(a)2,300 America West Holdings Corp., 'B'................. 66
15,500 American Express Co.............................. 1,767
500 American General Corp............................ 36
6,600 American Greeting Corp., 'A'..................... 336
37,300 American Home Products Corp...................... 1,930
13,000 American International Group, Inc................ 1,898
(a)1,700 American Power Conversion Corp................... 51
47,700 American Telephone & Telegraph Co................ 2,725
4,800 American Water Works, Inc........................ 149
(a)400 Amerisource Health Corp., 'A'.................... 26
21,400 Ameritech Corp................................... 960
(a)2,200 Amgen, Inc....................................... 144
22,500 Amoco Corp....................................... 937
8,000 AMP, Inc......................................... 275
(a)400 Amphenol Corp, 'A'............................... 16
(a)6,000 AMR Corp......................................... 499
2,400 Anadarko Petroleum Corp.......................... 161
(a)6,200 Andrew Corp...................................... 112
2,700 Anheuser-Busch Cos., Inc., 'A'................... 127
(a)4,800 Anixter International, Inc....................... 91
1,200 Apache Corp...................................... 38
(a)500 Apollo Group, Inc., 'A'.......................... 17
</TABLE>
-----------------------
69
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
(a)5,300 Apple Computer, Inc.............................. $ 152
(a)1,000 Applied Graphics Technologies, Inc............... 46
(a)11,400 Applied Material, Inc............................ 336
1,900 Applied Power, Inc., 'A'......................... 65
(a)59,800 Armco, Inc....................................... 381
5,300 Armstrong World Industries, Inc., 'B'............ 357
1,900 Arrow International, Inc......................... 52
(a)1,400 ATMI, Inc........................................ 21
(a)1,200 Arterial Vascular Engineering, Inc............... 43
1,600 Arvin Industries, Inc............................ 58
(a)700 Aspect Development, Inc.......................... 53
(a)1,100 Aspen Technologies, Inc.......................... 56
7,296 Associates First Capital Corp., 'A'.............. 561
6,900 Autodesk, Inc.................................... 267
1,500 Automatic Data Processing, Inc................... 109
(a)200 Autozone, Inc.................................... 6
4,800 Avon Products, Inc............................... 372
9,700 Baker Hughes, Inc................................ 335
22,700 Banc One Corp.................................... 1,267
400 Bandag, Inc...................................... 16
5,800 Bank of New York Co., Inc........................ 352
24,200 BankAmerica Corp................................. 2,092
12,600 BankBoston Corp.................................. 701
200 Bankers Trust New York Corp...................... 23
2,000 Banta Corp....................................... 62
2,900 Bausch & Lomb, Inc............................... 145
12,500 Baxter International, Inc........................ 673
(a)2,600 BEC Energy....................................... 108
15,600 Becton & Dickinson & Co.......................... 1,211
9,400 Bell Atlantic Corp............................... 429
24,000 BellSouth Corp................................... 1,611
6,800 Bemis Co., Inc................................... 278
(a)2,500 Berg Electronics Corp............................ 49
1,100 Bergen Brunswig Corp., 'A'....................... 51
(a)2,300 Best Buy Co., Inc................................ 83
8,400 Bestfoods........................................ 488
(a)35,200 Bethlehem Steel Corp............................. 438
(a)4,600 Beverly Enterprises, Inc......................... 64
(a)1,800 Billing Concepts Corp............................ 28
2,400 Bindley Western Industries, Inc.................. 79
(a)1,100 Biogen, Inc...................................... 54
1,800 Biomet, Inc...................................... 60
(a)1,300 BISYS Group, Inc................................. 53
(a)3,400 BJ Services Co................................... 99
1,100 Black & Decker Corp.............................. 67
(a)1,100 Blyth Industries, Inc............................ 37
21,900 Boeing Co........................................ 976
(a)2,000 Borders Group, Inc............................... 74
2,000 Borg-Warner Automotive, Inc...................... 96
1,800 Boston Edison Co................................. 75
(a)1,600 Boston Scientific Corp........................... 115
1,900 Briggs & Stratton Corp........................... 71
(a)3,000 Brightpoint, Inc................................. 43
(a)5,700 Brinker International, Inc....................... 110
31,200 Bristol-Myers Squibb Co.......................... 3,586
(a)2,700 Broderbund Software, Inc......................... 62
3,400 Brown-Forman Corp., 'B'.......................... 218
2,700 Brunswick Corp................................... 67
(a)1,200 Budget Group, Inc., 'A'.......................... 38
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
(a)6,000 Buffets, Inc..................................... $ 94
(a)7,000 Burlington Industries, Inc....................... 98
8,600 Burlington Northern Railroad Co.................. 844
2,200 Burlington Resources, Inc........................ 95
1,100 C&D Technology, Inc.............................. 64
(a)1,400 CACI International, Inc., 'A'.................... 29
(a)5,400 California Energy Company, Inc................... 162
(a)1,700 California Microwave, Inc........................ 30
(a)900 Cambridge Tech Partner, Inc...................... 49
6,600 Campbell Soup Co................................. 351
(a)900 Canandaigua Brands, Inc., 'A'.................... 44
2,700 Capital One Financial Corp....................... 335
1,700 Cardinal Health, Inc............................. 159
4,200 Carlisle Cos., Inc............................... 181
3,700 Case Corp........................................ 179
17,200 Caterpillar, Inc................................. 909
3,600 CBS, Inc......................................... 114
(a)600 CDW Computer Centers, Inc........................ 30
(a)1,800 Cendant Corp..................................... 38
1,100 Centex Construction Products, Inc................ 42
3,000 Centex Corp...................................... 113
(a)300 Centocor, Inc.................................... 11
700 Central & South West Corp........................ 19
1,700 Central Parking Corp............................. 79
2,400 Centura Banks, Inc............................... 150
(a)1,600 Chancellor Media Corp., 'A'...................... 79
35,000 Chase Manhattan Corp............................. 2,642
22,000 Chevron Corp..................................... 1,827
37,000 Chrysler Corp.................................... 2,086
(a)2,700 CHS Electronics, Inc............................. 48
6,700 Chubb Corp....................................... 539
(a)1,400 CIBER, Inc....................................... 53
10,200 CIGNA Corp....................................... 704
9,800 Cincinnati Milacron, Inc......................... 238
300 Cincinnati Financial Corp........................ 12
10,700 Cinergy Corp..................................... 374
3,200 Cintas Corp...................................... 163
1,000 Circuit City Stores-Circuit City Group........... 47
(a)13,300 Cisco Systems, Inc............................... 1,224
(a)2,100 Citation Corp.................................... 42
13,200 Citicorp......................................... 1,970
(a)1,000 Citrix Systems, Inc.............................. 68
700 CKE Restaurants, Inc............................. 29
(a)500 Clear Channel Communications, Inc................ 55
2,000 Clorox Co........................................ 191
700 CMAC Investment Corp............................. 43
5,000 Coastal Corp..................................... 349
59,600 Coca-Cola Co..................................... 5,096
2,600 Colgate Palmolive Co............................. 229
(a)4,600 Coltec Industries, Inc........................... 91
5,550 Columbia Energy Group............................ 309
7,000 Columbia HCA/Healthcare Corp..................... 204
1,100 Comair Holdings, Inc............................. 34
10,800 Comdisco, Inc.................................... 205
3,000 Comerica, Inc.................................... 199
2,100 Commercial Federal Corp.......................... 66
1,000 Commercial Metals Co............................. 31
(a)1,700 CompUSA, Inc..................................... 31
42,417 Compaq Computer Corp............................. 1,204
17,300 Computer Associates International, Inc........... 961
</TABLE>
- --------------
70
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
2,300 Computer Sciences Corp........................... $ 147
(a)2,700 Comverse Technology, Inc......................... 140
(a)1,900 Concord EFS, Inc................................. 50
1,500 Conseco, Inc..................................... 70
4,700 Consolidated, Inc................................ 128
(a)1,100 Consolidated Graphics, Inc....................... 65
(a)300 Consolidated Stores Corp......................... 11
5,100 Cooper Industries, Inc........................... 280
1,400 Cordant Technologies, Inc........................ 65
1,300 Corning, Inc..................................... 45
(a)1,400 Cort Business Services Corp...................... 44
(a)2,800 Costco Cos., Inc................................. 177
3,800 Countrywide Credit Industries, Inc............... 193
1,300 C.R. Bard, Inc................................... 50
1,700 Crompton & Knowles Corp.......................... 43
2,000 Crown Cork & Seal, Inc........................... 95
3,100 CSX Corp......................................... 141
1,100 Cullen/Frost Bankers, Inc........................ 60
300 Cummins Engine................................... 15
1,600 CVS Corp......................................... 62
(a)2,000 Cytec Industries, Inc............................ 88
1,100 Dallas Semiconductor Corp........................ 34
4,900 Dana Corp........................................ 262
800 Danaher Corp..................................... 29
12,000 Darden Restaurants, Inc.......................... 190
12,000 Dayton Hudson Corp............................... 582
1,600 Dean Foods Co.................................... 88
20,400 Deere & Co....................................... 1,079
3,400 Del Webb Corp.................................... 88
(a)10,900 Dell Computer Corp............................... 1,012
(a)1,326 Delphi Financial Group, Inc., 'A'................ 75
4,000 Delta Airlines, Inc.............................. 517
15,400 Deluxe Corp...................................... 552
400 Diebold, Inc..................................... 12
1,600 Digital Microwave Corp........................... 12
1,300 Dillards, Inc. 'A'............................... 54
12,800 Dime Bancorp, Inc................................ 383
(a)1,650 Dollar Tree Stores, Inc.......................... 67
7,000 Dominion Resources, Inc.......................... 285
4,800 Dow Jones & Co., Inc............................. 268
18,200 DPL, Inc......................................... 330
3,800 D.R. Horton, Inc................................. 79
(a)2,500 Dress Barn, Inc.................................. 62
12,700 Dresser Industries, Inc.......................... 560
(a)1,700 DST Systems, Inc................................. 95
25,500 Du Pont (EI) de Nemours Co....................... 1,903
(a)1,100 DuPont Photomasks, Inc........................... 38
5,200 Duke Power Co.................................... 308
11,600 Dun & Bradstreet Corp............................ 419
(a)1,000 Dura Pharmaceuticals, Inc........................ 22
4,900 Eastern Enterprises.............................. 210
800 Eastman Chemical Co.............................. 50
2,600 Eastman Kodak Co................................. 190
200 Eaton Corp....................................... 16
3,300 Ecolab, Inc...................................... 102
9,900 Edison International............................. 293
2,400 Electronics for Imaging, Inc..................... 130
19,800 Eli Lilly & Co................................... 1,308
(a)18,100 EMC Corp......................................... 811
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
8,400 Emerson Electric Co.............................. $ 507
1,700 Energen Corp..................................... 34
2,500 Energy East Corp................................. 104
8,600 Engelhard Corp................................... 174
6,000 Enron Corp....................................... 324
8,800 Entergy Corp..................................... 253
(a)900 Etec Systems, Inc................................ 32
2,700 Ethan Allen Interiors, Inc....................... 135
(a)900 Extended Stay America, Inc....................... 10
15,600 Exxon Corp....................................... 1,112
(a)1,255 EVI Weatherford, Inc............................. 47
1,500 E.W. Blanch Holdings, Inc........................ 55
(a)2,500 Fairfield Communities, Inc....................... 48
9,800 Family Dollar Stores, Inc........................ 181
20,900 Fannie Mae....................................... 1,270
(a)1,500 FDX Corp......................................... 94
(a)900 Federated Department Stores...................... 48
3,200 Fingerhut Cos., Inc.............................. 106
3,100 FINOVA Group, Inc................................ 176
1,100 First Chicago NBD Corp........................... 97
1,800 First Colorado Bancorp, Inc...................... 50
300 First Commercial Corp............................ 21
1,900 First Security Corp.............................. 41
32,900 First Union Corp. (N.C.)......................... 1,916
(a)1,400 FirstFed Financial Corp.......................... 73
3,900 FirstEnergy Corp................................. 120
10,700 Fleet Financial Group, Inc....................... 893
1,400 Fleetwood Enterprises, Inc....................... 56
6,400 Florida Progress Corp............................ 263
4,500 Flowers Industries, Inc.......................... 92
1,400 Flowserve Corp................................... 34
6,600 Fluor Corp....................................... 337
(a)3,100 Foodmaker, Inc................................... 52
(a)3,500 FORE Systems, Inc................................ 93
27,500 Ford Motor Co.................................... 1,623
(a)1,200 Forest Laboratories, Inc. 'A'.................... 43
5,800 Fort James Corp.................................. 258
12,800 Fortune Brands, Inc.............................. 492
11,200 Foster Wheeler Corp.............................. 240
10,400 FPL Group, Inc................................... 655
300 Franklin Resources, Inc.......................... 16
(a)900 Fred Meyer, Inc.................................. 38
11,100 Freddie Mac...................................... 522
8,500 Freeport McMoran Copper Corp., 'B'............... 129
800 Fremont General Corp............................. 43
(a)2,400 Fruit of the Loom................................ 80
(a)2,100 Furniture Brands International, Inc.............. 59
12,300 Gannett Co., Inc................................. 874
7,200 Gap, Inc......................................... 444
(a)1,800 Gateway 2000, Inc................................ 91
2,800 General Cable Corp............................... 81
(a)2,000 General Cigar Holdings, Inc...................... 20
1,600 General Dynamics Corp............................ 74
63,400 General Electric Co.............................. 5,769
500 General Mills, Inc............................... 34
10,700 General Motors Corp.............................. 715
(a)1,700 General Nutrition Cos., Inc...................... 53
2,300 General RE Corp.................................. 583
1,500 General Signal Corp.............................. 54
(a)1,300 Genesis Health Ventures, Inc..................... 33
</TABLE>
-----------------------
71
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
(a)3,800 Gentex Corp...................................... $ 69
2,000 Genzyme Corp..................................... 51
3,500 Georgia Gulf Corp................................ 80
1,100 Georgia-Pacific Corp............................. 65
12,300 Gillette Co...................................... 697
3,200 Gleason Corp..................................... 90
(a)1,600 Golden State Bancorp, Inc........................ 48
500 Golden West Financial Corp....................... 53
21,100 Goodrich (B.F.) Co............................... 1,047
(a)1,300 Goody's Family Clothing, Inc..................... 71
4,200 Goodyear Tire & Rubber Co........................ 271
13,500 GPU, Inc......................................... 510
1,400 Graco, Inc....................................... 49
1,200 Great Lakes Chemical Corp........................ 47
32,900 GTE Corp......................................... 1,830
2,100 Guidant Corp..................................... 150
2,500 Guilford Mills, Inc.............................. 50
(a)1,000 Ha-Lo Industries, Inc............................ 31
12,200 Halliburton Co................................... 544
3,100 Hannaford Brothers Co............................ 136
(a)700 Harrah's Entertainment, Inc...................... 16
11,100 Harris Corp...................................... 496
5,900 Harte-Hanks Communications, Inc.................. 152
11,700 Hartford Financial Services Group................ 1,338
600 Hartford Life, Inc. 'A'.......................... 34
2,400 HBO & Co......................................... 85
(a)1,800 Heartland Express, Inc........................... 36
8,200 Helmerich & Payne, Inc........................... 182
10,500 Hercules, Inc.................................... 432
4,200 Herman Miller, Inc............................... 102
5,300 Hershey Foods Corp............................... 366
1,000 Hertz Corp. 'A'.................................. 44
26,500 Hewlett-Packard Co............................... 1,587
3,300 Hibernia Corp., 'A'.............................. 67
5,400 Hilton Hotels Corp............................... 154
25,700 Home Depot, Inc.................................. 2,135
100 Honeywell, Inc................................... 8
800 Household International, Inc,.................... 40
4,300 Houston Industries, Inc.......................... 133
1,200 Hubco, Inc....................................... 43
4,800 Huntington Bancshares, Inc....................... 161
(a)1,100 Hyperion Software Corp........................... 31
2,200 IKON Office Solutions, Inc....................... 32
(a)1,000 Imation Corp..................................... 17
4,100 Impac Mortgage Holdings, Inc..................... 64
2,300 Inland Steel Industries, Inc..................... 65
4,700 INMC Mortgage Holdings, Inc...................... 107
(a)1,900 Input/Output, Inc................................ 34
37,900 Intel Corp....................................... 2,809
4,200 Interface, Inc................................... 85
(a)3,300 Interim Services, Inc............................ 106
22,800 International Business Machines Corp............. 2,618
(a)700 International Network Services................... 29
9,600 Interpublic Group of Cos., Inc................... 583
1,300 Interstate Bakeries Corp......................... 43
(a)2,000 Intuit, Inc...................................... 122
4,300 IPALCO Enterprises, Inc.......................... 191
4,700 ITT Industries, Inc.............................. 176
8,500 J.C. Penney Co., Inc............................. 615
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
2,100 Jefferson-Pilot Corp............................. $ 122
34,500 John H. Harland Co............................... 584
37,600 Johnson & Johnson................................ 2,773
11,400 Johnson Controls, Inc............................ 652
(a)4,200 Jones Apparel Group, Inc......................... 154
22,500 Jostens, Inc..................................... 537
2,000 Kansas City Southern Industries, Inc............. 99
4,000 Kaufman and Broad Home Corp...................... 127
1,800 Kaydon Corp...................................... 64
(a)1,100 Keane, Inc....................................... 62
800 Kerr-McGee Corp.................................. 46
19,600 KeyCorp.......................................... 698
13,100 Kimberly-Clark Corp.............................. 601
(a)5,200 King World Productions, Inc...................... 133
(a)100 KLA-Tencor Corp.................................. 3
(a)4,900 Kmart Corp....................................... 94
8,500 Knight Ridder, Inc............................... 468
5,300 Kuhlman Corp..................................... 210
1,700 La Quinta Inns, Inc.............................. 36
(a)1,800 Legato Systems, Inc.............................. 70
4,700 Lehman Brothers Holdings, Inc.................... 365
4,200 Lennar Corp...................................... 124
(a)1,400 Level One Communications, Inc.................... 33
(a)2,800 Lexmark International Group, Inc................. 171
(a)2,300 Linens 'n Things, Inc............................ 70
(a)500 Litton Industries, Inc........................... 29
5,800 Lockheed Martin Corp............................. 614
3,200 Longs Drug Stores, Inc........................... 92
7,400 Lowe's Cos., Inc................................. 300
(a)1,400 LSI Logic Corp................................... 32
8,100 LTV Corp......................................... 77
1,800 Lubrizol Corp.................................... 54
21,000 Lucent Technologies, Inc......................... 1,747
4,200 Lyondell Petrochemical Co........................ 128
1,000 Magna Group, Inc................................. 56
6,000 Mallinckrodt, Inc................................ 178
20,600 Manor Care, Inc.................................. 792
2,550 Marsh & McLennan Cos., Inc....................... 154
400 Martin Marietta Corp............................. 18
3,300 MascoTech, Inc................................... 79
900 Mattel, Inc...................................... 38
3,800 May Department Stores Co......................... 249
8,300 Maytag Corp...................................... 410
6,200 MBIA, Inc........................................ 464
2,200 MBNA Corp........................................ 73
900 McClatchy Newspapers, Inc........................ 31
6,600 McDermott International, Inc..................... 227
32,800 McDonald's Corp.................................. 2,263
6,900 McGraw-Hill Cos., Inc............................ 563
2,500 MCI Communications Corp.......................... 145
4,200 MCN Corp......................................... 104
2,100 MDU Resources Group.............................. 75
6,100 Mead Corp........................................ 194
(a)3,000 Medquist, Inc.................................... 87
6,900 Medtronic, Inc................................... 440
2,000 Mellon Bank Corp................................. 139
300 Mercantile Stores Co., Inc....................... 24
22,000 Merck & Co., Inc................................. 2,942
7,000 Mercury General Corp............................. 451
5,500 Meredith Corp.................................... 258
</TABLE>
- --------------
72
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
2,366 Meritor Automotive, Inc.......................... $ 57
14,000 Merrill Lynch & Co., Inc......................... 1,291
1,200 Metris Cos., Inc................................. 76
(a)62,400 Microsoft Corp................................... 6,763
1 Midas, Inc....................................... --
(a)1,500 Midway Games, Inc................................ 23
(a)2,350 Midwest Express Holdings......................... 85
3,000 Millenium Chemicals, Inc......................... 102
4,300 Minnesota Mining & Manufacturing Co.............. 353
19,300 Mobil Corp....................................... 1,479
7,900 Monsanto......................................... 441
8,500 Montana Power Co................................. 295
7,600 Motorola, Inc.................................... 399
4,700 Mylan Laboratories, Inc.......................... 141
(a)3,100 Nabors Industries, Inc........................... 61
10,200 National City Corp............................... 724
5,500 National Commerce Bancorp........................ 230
1,000 National Data Corp............................... 44
2,200 National Service Industries, Inc................. 112
28,300 NationsBank Corp................................. 2,165
1,800 Nationwide Financial Services, Inc., Class A..... 92
(a)2,400 Nautica Enterprises, Inc......................... 64
(a)13,800 Navistar International Corp...................... 398
(a)1,200 NBTY, Inc........................................ 22
(a)1,600 Neiman Marcus Group, Inc......................... 69
2,200 New Century Energies, Inc........................ 100
700 New York State Electric & Gas Corp............... 29
3,100 New York Times Co., 'A'.......................... 246
1,100 Newell Co........................................ 55
5,400 Newmont Mining Corp.............................. 128
(a)4,500 Newpark Resources, Inc........................... 50
800 Newport News Shipbuilding, Inc................... 21
1,800 Nicor, Inc....................................... 72
(a)1,800 Nine West Group, Inc............................. 48
6,800 Nipsco Industries, Inc........................... 190
(a)3,000 Noble Drilling Corp.............................. 72
400 Nordstrom, Inc................................... 31
8,800 Northern Telecom Ltd............................. 499
1,300 Northrop Grumman Corp............................ 134
6,100 Norwest Corp..................................... 228
(a)6,800 Novacare Corp.................................... 80
(a)10,900 Novell, Inc...................................... 139
(a)1,000 Nu Skin Enterprises, Inc......................... 20
1,900 Nucor Corp....................................... 87
8,400 Occidental Petroleum Corp........................ 227
(a)1,700 Ocean Energy, Inc................................ 33
(a)4,900 Office Depot, Inc................................ 155
(a)3,400 OfficeMax, Inc................................... 56
2,520 Old Kent Financial Corp.......................... 91
7,050 Old Republic International Corp.................. 207
2,400 Olin Corp........................................ 100
800 Omnicon Group, Inc............................... 40
(a)18,400 Oracle System Corp............................... 452
(a)1,100 Orbital Sciences Corp............................ 41
(a)100 O'Reilly Automotive, Inc......................... 4
2,700 Orion Capital Corp............................... 151
(a)1,900 Owens-Illinois, Inc.............................. 85
2,600 PACCAR, Inc...................................... 136
800 PacifiCorp....................................... 18
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
(a)600 Palm Harbor Homes, Inc........................... $ 26
(a)300 Parametric Technology Co......................... 8
670 Patriot American Hospitality, Inc. REIT.......... 16
(a)4,900 Patterson Energy, Inc............................ 48
(a)1,100 Payless ShoeSource, Inc.......................... 81
53,200 Peco Energy Co................................... 1,553
9,500 Pennzoil Co...................................... 481
1,200 Peoples Energy Corp.............................. 46
30,700 PepsiCo, Inc..................................... 1,264
2,300 Perkin-Elmer Corp................................ 143
37,400 Pfizer, Inc...................................... 4,065
3,400 PG&E Corp........................................ 107
1,300 Pharmacia & Upjohn, Inc.......................... 60
91,900 Philip Morris Cos., Inc.......................... 3,619
3,400 Phillips-Van Heusen Corp......................... 50
2,700 Pier 1 Imports, Inc.............................. 64
9,600 Pinnacle West Capital Corp....................... 432
(a)1,700 Platinum Technology, Inc......................... 49
(a)1,100 PMC-Sierra, Inc.................................. 52
2,700 Polaroid Corp.................................... 96
(a)1,600 Policy Management Systems Corp................... 63
7,200 PP&L Resources, Inc.............................. 163
(a)1,900 Premiere Technologies, Inc....................... 16
(a)700 Primark Corp..................................... 22
(a)5,200 Prime Hospitality Corp........................... 91
45,500 Procter & Gamble Co.............................. 4,143
(a)1,700 Profitt's Inc.................................... 69
300 Progressive Corp................................. 42
(a)2,690 Promus Company, Inc.............................. 104
2,100 Protective Life Corp............................. 77
2,100 Provident Companies, Inc......................... 72
3,800 Providian Financial Corp......................... 299
3,800 Public Service Co. of New Mexico................. 86
10,000 Public Service Enterprise Group, Inc............. 344
8,800 Pulte Corp....................................... 263
(a)3,100 Quintiles Transnational Corp..................... 152
(a)3,000 Quorum Health Group, Inc......................... 80
(a)3,400 R & B Falcon Corp................................ 77
3,400 Ralston-Ralston Purina Group..................... 397
12,400 Raychem Corp..................................... 367
3,800 Rayonier, Inc.................................... 175
5,300 Raytheon Co., 'B'................................ 313
3,700 Readers Digest Association, Inc., 'A'............ 100
(a)3,800 Reebok International Ltd......................... 105
3,700 Regis Corp....................................... 109
8,600 Reliastar Financial Corp......................... 413
5,800 Republic New York Corp........................... 365
2,100 Resource Bancshares Mortgage Group, Inc.......... 39
(a)800 Rexall Sundown, Inc.............................. 28
3,100 Reynolds & Reynolds Co. 'A'...................... 56
(a)3,200 Rio Hotel & Casino, Inc.......................... 60
(a)2,900 Robert Half International, Inc................... 162
4,100 Rochester Gas & Electric Corp.................... 131
4,700 Rockwell International Corp...................... 226
2,700 Rohm & Haas Co................................... 281
3,700 Rollins Truck Leasing Corp....................... 46
(a)2,300 Romac International, Inc......................... 70
2,200 Roper Industries, Inc............................ 57
2,000 Ross Stores, Inc................................. 86
(a)5,400 Rowan Cos., Inc.................................. 105
</TABLE>
-----------------------
73
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
3,400 Rubbermaid, Inc.................................. $ 113
2,700 Ruby Tuesday, Inc................................ 42
(a)1,300 Rural/Metro Corp................................. 17
2,000 Russell Corp..................................... 60
1,900 Ryder Systems, Inc............................... 60
1,700 Ryland Group, Inc................................ 45
4,200 SAFECO Corp...................................... 191
(a)900 Sapient Corp..................................... 47
20,300 Sara Lee Corp.................................... 1,136
20,398 SBC Communications, Inc.......................... 816
5,500 Schering-Plough Corp............................. 504
4,600 Schlumberger Ltd................................. 314
200 Schwab (Charles) Corp............................ 7
5,600 Scientific-Atlanta, Inc.......................... 142
(a)1,000 Seagate Technology, Inc.......................... 24
(a)1,200 Sealed Air Corp.................................. 44
15,400 Sears, Roebuck & Co.............................. 940
(a)7,368 Sempra Energy.................................... 204
2,100 Service Corp. International...................... 90
2,100 Shared Medical Systems Corp...................... 154
(a)1,600 Showbiz Pizza Time, Inc.......................... 65
(a)2,000 Siebel Systems, Inc.............................. 65
(a)4,000 Silicon Valley Bancshares........................ 142
(a)1,100 Smith International, Inc......................... 38
2,700 Snap-On, Inc..................................... 98
(a)800 Snyder Communications, Inc....................... 35
(a)900 Sofamor Danek Group, Inc......................... 78
(a)4,350 Sonic Corp....................................... 97
4,750 Sonoco Products Co............................... 144
2,500 Sotheby's Holdings, Inc. 'A'..................... 56
21,800 Southern Co...................................... 604
3,200 Southern New England Telecommunications Corp..... 210
800 Southwest Airlines Co............................ 24
300 Springs Industries, Inc. 'A'..................... 14
3,900 Sprint Corp...................................... 275
(a)300 SPX Corp......................................... 19
3,966 St. Paul Cos., Inc............................... 167
1,400 St. John Knits, Inc.............................. 54
(a)1,100 St. Jude Medical, Inc............................ 41
(a)1,900 Staffmark, Inc................................... 70
(a)900 Starbucks Corp................................... 48
1,300 State Auto Financial Corp........................ 41
1,300 StateStreet Corp................................. 90
(a)3,100 Station Casinos, Inc............................. 46
(a)900 Steris Corp...................................... 57
(a)1,400 Sterling Commerce, Inc........................... 68
(a)3,200 Sterling Software, Inc........................... 95
2,900 Stewart Enterprises, Inc. 'A'.................... 77
(a)1,200 Storage Technology Corp.......................... 52
(a)900 Stratus Computer, Inc............................ 23
(a)1,200 Suburban Lodges of America....................... 18
(a)500 Suiza Foods Corp................................. 30
28,800 Sun Co., Inc..................................... 1,118
(a)15,400 Sun Microsystems, Inc............................ 669
12,000 SunAmerica, Inc.................................. 689
4,600 Suntrust Banks, Inc.............................. 374
13,700 SUPERVALU Inc.................................... 608
2,400 Superior Industries International................ 68
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
1,700 Superior TeleCom, Inc............................ $ 71
(a)2,000 Sybron International Corp........................ 51
(a)3,800 Symantec Corp.................................... 99
1,300 Symbol Technologies, Inc......................... 49
(a)1,700 Synopsys, Inc.................................... 78
(a)2,800 Systems & Computer Technology Corp............... 76
700 Tandy Corp....................................... 37
1,400 TCA Cable TV, Inc................................ 84
(a)1,000 Tech Data Corp................................... 43
6,600 Tektronix, Inc................................... 233
(a)200 Tele-Communications, Inc., 'A'................... 8
(a)11,132 Tele-Communications-TCI Ventures Group 'A'....... 223
(a)900 Tellabs, Inc..................................... 64
2,400 Telxon Corp...................................... 78
(a)400 Tenet Healthcare Corp............................ 13
4,500 Tenneco, Inc..................................... 171
5,200 Texaco, Inc...................................... 310
9,200 Texas Instruments, Inc........................... 536
10,900 Texas Utilities Co............................... 454
5,400 Textron, Inc..................................... 387
(a)1,750 The Buckle, Inc.................................. 52
900 Thiokol Corp..................................... 42
11,000 Thomas & Betts Corp.............................. 542
(a)200 3Com Corp........................................ 6
(a)2,800 360 Communications Co............................ 90
1,300 Tidewater, Inc................................... 43
1,800 Tiffany & Co..................................... 86
4,700 TIG Holdings, Inc................................ 108
3,800 Time Warner, Inc................................. 325
5,200 Timken Co........................................ 160
16,200 TJX Companies, Inc............................... 391
10,000 Torchmark Corp................................... 458
(a)1,300 Total Renal Care Holdings, Inc................... 45
(a)500 Toys 'R' Us, Inc................................. 12
3,800 Trans Financial, Inc............................. 218
(a)900 Transactions Systems Architects, Inc............. 35
900 Transatlantic Holdings, Inc...................... 70
32,100 Travelers, Inc................................... 1,946
(a)1,500 Triad Guaranty, Inc.............................. 51
100 Tribune Co....................................... 7
(a)400 Tricon Global Restaurants, Inc................... 13
(a)1,900 Trigon Healthcare, Inc........................... 69
5,100 Trinity Industries, Inc.......................... 212
(a)1,100 Triumph Group, Inc............................... 46
7,600 Trustmark Corp................................... 167
5,100 TRW, Inc......................................... 279
3,000 Tupperware Corp.................................. 84
22,800 Tyco International Ltd........................... 1,436
11,400 Unicom Corp...................................... 400
3,700 Union Carbide Corp............................... 197
3,500 Union Pacific Corp............................... 154
800 Union Pacific Resources Group, Inc............... 14
(a)1,300 Uniphase Corp.................................... 82
(a)8,600 Unisys Corp...................................... 243
6,100 United Asset Management Co....................... 159
2,200 United Illuminating Co........................... 111
(a)1,100 United Stationers, Inc........................... 71
14,800 United Technologies Corp......................... 1,369
3,000 Universal Foods Corp............................. 67
(a)2,300 Universal Health Services, Inc................... 134
</TABLE>
- --------------
74
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
(a)900 U.S. Airways Group, Inc.......................... $ 71
5,200 U.S. Bancorp..................................... 224
(a)300 U.S. Filter Corp................................. 8
(a)300 U.S. Foodservice, Inc............................ 11
1,700 U.S. Freightways Corp............................ 56
1,000 U.S. Industries, Inc............................. 25
4,200 U.S. Surgical Corp............................... 192
(a)11,200 U.S. West Communications Group................... 526
1,900 U.S. West Media Group............................ 83
2,600 USG Corp......................................... 141
23,300 UST, Inc......................................... 629
18,900 USX-Marathon Group............................... 649
31,400 USX-U.S. Steel Group, Inc........................ 1,036
4,400 UtliCorp United, Inc............................. 166
2,100 Valspar Corp..................................... 83
(a)3,200 Varco International, Inc......................... 63
(a)1,300 Vencor, Inc...................................... 9
2,000 Ventas, Inc...................................... 28
(a)600 Veritas DGC, Inc................................. 30
(a)3,600 Viacom, Inc., Class B............................ 210
(a)3,600 Viking Office Products, Inc...................... 113
(a)600 Visio Corp....................................... 29
(a)1,900 Vitesse Semiconductor............................ 59
(a)480 Vlasic Foods International, Inc.................. 10
1,900 Vulcan Materials Co.............................. 203
2,500 Wabash National Corp............................. 64
51,600 Wal-Mart Stores, Inc............................. 3,135
1,100 Walgreen Co...................................... 45
15,200 Walt Disney Co................................... 1,597
11,400 Warner-Lambert Co................................ 791
2,600 Washington Gas Light Co.......................... 70
10,500 Washington Mutual, Inc........................... 456
(a)1,900 Waters Corp...................................... 112
(a)1,700 Watson Pharmaceuticals, Inc...................... 79
5,400 Webster Financial Corp........................... 180
4,000 Wendy's International, Inc....................... 94
(a)2,700 Western Digital Corp............................. 32
(a)1,500 Westpoint Stevens, Inc........................... 50
3,900 Weyerhaeuser Co.................................. 180
3,500 Whitman Corp..................................... 80
(a)700 Whole Foods Market, Inc.......................... 42
2,800 Wicor, Inc....................................... 65
2,100 Williams Cos., Inc............................... 71
(a)500 Williams-Sonoma, Inc............................. 16
1,200 Wolverine World Wide, Inc........................ 26
(a)6,900 Woolworth Corp................................... 132
(a)8,300 Worldcom, Inc.................................... 402
(a)800 World Access, Inc................................ 24
3,600 Worthington Industries, Inc...................... 54
(a)8,400 W.R. Grace & Co.................................. 143
9,900 Xerox Corp....................................... 1,006
(a)600 Yahoo!, Inc...................................... 95
3,100 York International Corp.......................... 135
(a)4,300 Zale Corp........................................ 137
--------
223,557
--------
TOTAL COMMON STOCKS (COST $396,708)............................. 477,545
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
PREFERRED STOCKS (0.3%)
AUSTRIA ( 0.1%)
(a)5,528 Bank Austria AG.................................. $ 449
(a)300 Bank Austria AG.................................. 14
(a)200 EA-Generali AG................................... 40
--------
503
--------
GERMANY (0.2%)
(a)1,076 SAP AG-Vorzug.................................... 732
(a)150 Volkswagen AG.................................... 102
--------
834
--------
ITALY (0.0%)
(a)81,550 Fiat S.p.A. (Privilegiate)....................... 203
--------
TOTAL PREFERRED STOCKS (COST $622).............................. 1,540
--------
INVESTMENT COMPANIES (0.9%)
UNITED STATES (0.9%)
(g)381,900 Latin American Discovery Fund, Inc............... 3,628
(g)70,000 Morgan Stanley Africa Investment Fund, Inc....... 831
(g)124,800 Morgan Stanley Asia-Pacific Fund, Inc............ 803
--------
TOTAL INVESTMENT COMPANIES (COST $8,048)........................ 5,262
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ------------
RIGHTS (0.0%)
GERMANY (0.0%)
(a)9,200 Daimler-Benz AG.................................. 10
(a)5,557 Metro AG, expiring 7/24/98....................... --
--------
10
--------
PORTUGAL (0.0%)
(a)10,100 Banco Espirito Santo............................. 64
(a)7,100 Banco Espirito Santo (Registered)................ 5
--------
69
--------
SPAIN (0.0%)
(a)8,610 Autopistas Concesionaria Espanola S.A., expiring
7/10/98........................................ --
--------
SWITZERLAND (0.0%)
(a)3,850 Adecco S.A., expiring 7/15/98.................... --
--------
TOTAL RIGHTS (COST $0).......................................... 79
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ------------
WARRANTS (0.0%)
FRANCE (0.0%)
(a)5,623 Cie Generale des Eaux, expiring 5/2/01........... 11
(a)5 Sodexho S.A., expiring 6/7/04.................... 2
--------
13
--------
HONG KONG (0.0%)
(a)8,950 Hong Kong and China Gas Co., Ltd., expiring
9/30/99........................................ 1
(a)8,400 Hysan Development Co., Ltd., expiring 4/30/99.... --
--------
1
--------
</TABLE>
-----------------------
75
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- --------------------------------------------------------------------------
ITALY (0.0%)
<C> <S> <C>
(a)2,891 La Rinascente S.p.A., expiring 12/31/99.......... $ 6
(a)913 La Rinascente S.p.A., expiring 12/31/99.......... 1
(a)7,210 Mediobanca S.p.A................................. 34
--------
41
--------
TOTAL WARRANTS (COST $0)........................................ 55
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
FRF 32 Casino Guichard Perrachon 4.50%, 7/12/01......... 26
29 Sanofi S.A. 4.00%, 1/1/00........................ 39
53 Simco S.A. 3.25%, 1/1/06......................... 52
25 Sodexho S.A. 6.00%, 6/7/04....................... 4
--------
121
--------
ITALY (0.0%)
ITL 18,504 Mediobanca S.p.A. 4.50%, 1/1/00.................. 10
--------
PORTUGAL (0.0%)
$ 3,403 Jeronimo Martins................................. 20
--------
TOTAL CONVERTIBLE DEBENTURES (COST $72)......................... 151
--------
TOTAL FOREIGN & U.S. SECURITIES (81.3%) (COST $405,450)......... 484,632
--------
SHORT-TERM INVESTMENT (21.0%)
REPURCHASE AGREEMENT (21.0%)
125,328 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $125,347,
collateralized by $95,580 U.S. Treasury Bonds,
10.75%, due 8/15/05, valued at $128,255 (COST
$125,328)...................................... 125,328
--------
TOTAL INVESTMENT IN SECURITIES (102.3%) (COST $530,778)......... 609,960
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
FOREIGN CURRENCY (0.3%)
AUD 2 Australian Dollar................................ $ 1
ATS 231 Austrian Schilling............................... 18
GBP 1 British Pound.................................... 2
CAD 28 Canadian Dollar.................................. 19
FRF 1,844 French Franc..................................... 305
DEM 41 German Mark...................................... 23
HKD 127 Hong Kong Dollar................................. 17
HUF 1,105 Hungarian Forint................................. 5
ITL 1,599,098 Italian Lira..................................... 900
JPY 8,624 Japanese Yen..................................... 62
NOK 101 Norwegian Krone.................................. 13
PTE 65 Portuguese Escudo................................ 1
KRW 73 South Korean Won................................. --
ESP 186 Spanish Peseta................................... 1
SEK 1,099 Swedish Krona.................................... 138
CHF 9 Swiss Franc...................................... 6
THB 1,370 Thai Baht........................................ 32
--------
TOTAL FOREIGN CURRENCY (COST $1,554)............................ 1,543
--------
TOTAL INVESTMENTS (102.6%) (COST $532,332)...................... 611,503
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.6%)................... (15,423)
--------
NET ASSETS (100%)............................................... $596,080
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
(g) -- The Fund is advised by an affiliate which earns a management fee as
advisor to the Fund.
ADR -- American Depositary Receipt
NCS -- Non Convertible Shares
REIT -- Real Estate Investment Trust
- --------------
76
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- --------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 133 $ 133 7/1/98 ITL 235,733 $ 132 $ (1)
$ 100 100 7/1/98 NLG 204 100 --
$ 448 448 7/1/98 SEK 3,573 448 --
$ 21 21 7/1/98 GBP 13 21 --
$ 81 81 7/2/98 GBP 49 81 --
JPY 8,664 63 7/2/98 $ 63 63 --
$ 54 54 7/2/98 NLG 110 54 --
$ 160 160 7/3/98 ITL 286,262 161 1
$ 116 116 7/3/98 GBP 69 116 --
$ 11 11 7/6/98 GBP 7 11 --
$ 84 84 7/6/98 GBP 51 84 --
$ 2,379 2,379 7/9/98 DEM 4,266 2,366 (13)
$ 2,374 2,374 7/9/98 DEM 4,174 2,316 (58)
$ 12,903 12,903 7/9/98 DEM 22,924 12,718 (185)
DEM 1,046 580 7/9/98 $ 572 572 (8)
DEM 22,924 12,718 7/9/98 $ 12,892 12,892 174
$ 5,906 5,906 7/15/98 ITL 10,412,222 5,861 (45)
$ 5,205 5,205 7/15/98 ITL 9,216,913 5,188 (17)
ITL 1,252,034 705 7/15/98 $ 696 696 (9)
ITL 1,995,313 1,123 7/15/98 $ 1,109 1,109 (14)
$ 258 258 7/29/98 GBP 157 262 4
$ 11,855 11,855 7/29/98 GBP 7,108 11,852 (3)
GBP 7,108 11,852 7/29/98 $ 11,596 11,596 (256)
$ 553 553 7/31/98 FRF 3,351 555 2
$ 2,526 2,526 8/4/98 MYR 10,391 2,463 (63)
MYR 4,297 1,019 8/4/98 $ 953 953 (66)
MYR 6,094 1,445 8/4/98 $ 1,335 1,335 (110)
$ 3,528 3,528 8/6/98 ITL 6,183,349 3,482 (46)
$ 2,460 2,460 8/12/98 HKD 19,142 2,461 1
$ 3,459 3,459 8/12/98 HKD 26,904 3,459 --
HKD 19,142 2,461 8/12/98 $ 2,464 2,464 3
HKD 26,904 3,459 8/12/98 $ 3,463 3,463 4
ITL 907,150 511 8/12/98 $ 509 509 (2)
$ 11,158 11,158 8/14/98 DEM 19,770 10,992 (166)
DEM 19,770 10,992 8/14/98 $ 11,158 11,158 166
DEM 184 102 8/14/98 $ 102 102 --
$ 7,067 7,067 8/17/98 FRF 41,533 6,888 (179)
$ 16,387 16,387 8/17/98 GBP 10,077 16,783 396
$ 4,869 4,869 8/17/98 GBP 2,987 4,975 106
FRF 41,533 6,888 8/17/98 $ 6,981 6,981 93
GBP 2,987 4,975 8/17/98 $ 4,902 4,902 (73)
$ 1,270 1,270 8/19/98 JPY 166,805 1,212 (58)
$ 1,784 1,784 8/19/98 JPY 234,221 1,702 (82)
JPY 234,221 1,702 8/19/98 $ 1,687 1,687 (15)
$ 631 631 8/26/98 JPY 87,474 637 6
JPY 70,206 511 8/26/98 $ 526 526 15
JPY 87,474 636 8/26/98 $ 654 654 18
$ 2 2 8/31/98 JPY 333 2 --
$ 3,127 3,127 8/31/98 JPY 437,245 3,154 27
JPY 437,245 3,154 8/31/98 $ 3,440 3,440 286
JPY 323 2 8/31/98 $ 2 2 --
$ 10 10 9/10/98 CAD 15 10 --
$ 3,483 3,483 9/10/98 JPY 481,948 3,514 31
JPY 331,541 2,417 9/10/98 $ 2,427 2,427 10
JPY 481,948 3,514 9/10/98 $ 3,531 3,531 17
</TABLE>
-----------------------
77
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- --------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
JPY 898,977 $ 6,554 9/10/98 $ 6,220 $ 6,220 $ (334)
$ 5,055 5,055 9/14/98 DEM 9,100 5,069 14
$ 10,350 10,350 9/16/98 FRF 62,412 10,368 18
DEM 9,916 5,524 9/18/98 $ 5,542 5,542 18
JPY 828,783 6,053 9/21/98 $ 6,088 6,088 35
JPY 615,727 4,502 9/28/98 $ 4,505 4,505 3
JPY 106,298 777 9/28/98 $ 754 754 (23)
DEM 9,911 5,526 10/2/98 $ 5,542 5,542 16
DEM 9,856 5,500 10/16/98 $ 5,542 5,542 42
CAD 1,630 1,110 10/19/98 $ 1,112 1,112 2
JPY 690,663 5,065 10/19/98 $ 4,870 4,870 (195)
--------- --------- -----
$ 231,247 $ 230,734 $ (513)
--------- --------- -----
--------- --------- -----
</TABLE>
- --------------------------------------------------------------------------------
FUTURES CONTRACTS: At June 30, 1998, the Portfolio had futures contracts open:
<TABLE>
<CAPTION>
UNREALIZED
AGGREGATE APPRECIATION
NUMBER OF FACE VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
PURCHASES:
DAX Index 29 DEM 9,004 Sep-98 $ 471
CAC 40 Index 130 FRF 17,873 Sep-98 476
FTSE 100 Index 175 GBP 17,174 Sep-98 (291)
MIB 30 Index 64 ITL 12,016 Sep-98 280
S&P 500 Index 55 $ 15,813 Sep-98 (92)
SALES:
TOPIX Index 25 JPY 2,118 Sep-98 (89)
Toronto Index 8 CAD 1,073 Sep-98 (31)
-----
$ 724
-----
-----
</TABLE>
- ---------------
CAD -- Canadian Dollar
FRF -- French Franc
DEM -- German Mark
GBP -- British Pound
HKD -- Hong Kong Dollar
ITL -- Italian Lira
JPY -- Japanese Yen
MYR -- Malaysian Ringgit
NLG -- Netherlands Guilder
SEK -- Swedish Krona
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Finance.......................................................................... $ 120,588 20.2%
Consumer Products................................................................ 106,881 17.9
Services......................................................................... 85,785 14.4
Capital Goods & Equipment........................................................ 71,102 11.9
Energy........................................................................... 49,310 8.3
Materials........................................................................ 32,151 5.4
Multi-Industry................................................................... 6,517 1.1
Technology....................................................................... 5,854 1.0
Investment Companies............................................................. 5,263 0.9
Gold Mines....................................................................... 1,181 0.2
--------- ---
$ 484,632 81.3%
--------- ---
--------- ---
</TABLE>
- --------------
78
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
FIXED INCOME SECURITIES (93.3%)
AUSTRALIAN DOLLAR (7.1%)
GOVERNMENT BONDS
AUD 200 Government of Australia 12.00%, 11/15/01......... $ 149
200 Government of Australia 10.00%, 2/15/06.......... 158
------
307
------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--GLOBAL
200 Federal National Mortgage Association 6.50%,
7/10/02........................................ 127
180 Federal National Mortgage Association 6.375%,
8/15/07........................................ 116
------
243
------
TOTAL AUSTRALIAN DOLLAR...................................... 550
------
BRITISH POUND (7.4%)
GOVERNMENT BOND
GBP 290 United Kingdom 8.50%, 7/16/07.................... 570
------
CANADIAN DOLLAR (4.4%)
GOVERNMENT BONDS
CAD 330 Government of Canada 8.75%, 12/1/05.............. 270
80 Government of Canada 8.00%, 6/1/23............... 73
------
343
------
DANISH KRONE (4.9%)
GOVERNMENT BONDS
DKK 800 Kingdom of Denmark 9.00%, 11/15/00............... 128
1,500 Kingdom of Denmark 8.00%, 5/15/03................ 250
------
378
------
FRENCH FRANC (3.5%)
GOVERNMENT BOND
FRF 1,400 Government of France 7.25%, 4/25/06.............. 270
------
GERMAN MARK (20.2%)
GOVERNMENT BONDS
DEM 500 Deutschland Republic, 6.50%, 10/14/05............ 308
200 Deutschland Republic, 6.00%, 1/4/07.............. 120
200 Deutschland Republic, 6.25%, 1/4/24.............. 125
450 German Unity Bond 8.00%, 1/21/02................. 279
810 Treuhandanstalt 7.50%, 9/9/04.................... 519
------
1,351
------
CORPORATE BONDS
150 KFW International Finance, Inc. 7.50%, 1/24/00... 87
200 Landeskreditbank Baden-Wuerttemberg Financial
6.63%, 8/20/03................................. 121
------
208
------
TOTAL GERMAN MARK............................................ 1,559
------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
ITALIAN LIRA (7.1%)
GOVERNMENT BONDS
ITL 400,000 Buoni Poliennali Del Tesoro 10.00%, 8/1/03....... $ 278
150,000 Buoni Poliennali Del Tesoro 9.50%, 1/1/05........ 106
230,000 Buoni Poliennali Del Tesoro 9.50%, 2/1/06........ 166
------
TOTAL ITALIAN LIRA........................................... 550
------
JAPANESE YEN (5.2%)
EUROBONDS
JPY 27,000 Japan Development Bank 6.50%, 9/20/01............ 230
20,000 World Bank 4.75%, 12/20/04....................... 175
------
TOTAL JAPANESE YEN........................................... 405
------
SWEDISH KRONA (5.4%)
GOVERNMENT BOND
SEK 3,100 Swedish Government 6.00%, 2/9/05................. 415
------
UNITED STATES DOLLAR (28.1%)
U.S. TREASURY BONDS
$ 400 8.125%, 8/15/19.................................. 516
300 6.25%, 8/15/23................................... 321
40 7.625%, 2/15/25.................................. 51
------
888
------
U.S. TREASURY NOTES
1,000 7.25%, 5/15/04................................... 1,085
201 3.625%, 1/15/08.................................. 199
------
1,284
------
TOTAL UNITED STATES DOLLAR................................... 2,172
------
TOTAL FIXED INCOME SECURITIES (COST $7,162).................... 7,212
------
SHORT-TERM INVESTMENT (5.1%)
REPURCHASE AGREEMENT (5.1%)
UNITED STATES DOLLAR
390 Chase Securities, Inc., 5.40%, dated 6/30/98 due
7/1/98, to be repurchased at $390,
collateralized by $305 U.S. Treasury Bonds,
8.125%, due 5/15/21, valued at $400 (COST
$390).......................................... 390
------
TOTAL INVESTMENTS IN SECURITIES (98.4%) (COST $7,552).......... 7,602
------
FOREIGN CURRENCY (0.1%)
ITL 40 Italian Lira..................................... --
JPY 713 Japanese Yen..................................... 5
------
TOTAL FOREIGN CURRENCY (COST $5)............................... 5
------
TOTAL INVESTMENTS (98.5%) (COST $7,557)........................ 7,607
OTHER ASSETS IN EXCESS OF LIABILITIES (1.5%)................... 119
------
NET ASSETS (100%).............................................. $7,726
------
------
</TABLE>
-----------------------
79
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
DEM 450 $ 250 7/13/98 $ 255 $ 255 $ 5
DEM 115 64 7/13/98 $ 65 65 1
SEK 1,040 130 7/14/98 $ 137 137 7
$ 269 269 7/16/98 JPY 37,000 268 (1)
$ 38 38 7/17/98 CAD 55 37 (1)
$ 20 20 7/17/98 CAD 30 20 --
CAD 200 136 7/17/98 $ 136 136 --
ATS 500 310 7/21/98 $ 312 312 2
ATS 240 149 7/21/98 $ 147 147 (2)
--------- --------- ---
$ 1,366 $ 1,377 $ 11
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------
ATS -- Austrian Schilling
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
FRF -- French Franc
JPY -- Japanese Yen
SEK -- Swedish Krona
- --------------
80
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
U.S. TREASURY & AGENCY OBLIGATIONS (78.9%)
FEDERAL HOME LOAN MORTGAGE ASSOCIATION DISCOUNT NOTES
(71.8%)
$ 5,650 5.45%, 8/7/98.................................... $ 5,618
15,000 5.46%, 4/21/99................................... 14,993
20,000 5.42%, 9/4/98.................................... 19,804
-----------
40,415
-----------
FEDERAL FARM CREDIT BANK (3.5%)
2,000 5.50%, 4/1/99.................................... 1,999
-----------
U.S. TREASURY NOTES (3.6%)
2,000 5.875%, 1/31/99.................................. 2,005
-----------
TOTAL U.S. TREASURY & AGENCY OBLIGATIONS (COST $44,419)....... 44,419
-----------
VARIABLE RATE OBLIGATIONS (4.4%)
FEDERAL HOME LOAN BANK (4.4%)
2,500 5.43%, 8/18/98 (COST $2,500)..................... 2,500
-----------
SHORT-TERM INVESTMENT (16.7%)
REPURCHASE AGREEMENT (16.7%)
9,398 J.P. Morgan Securities, Inc., 5.50%, dated
6/30/98, due 7/1/98, to be repurchased at
$9,399, collateralized by $9,623 U.S. Treasury
Notes, 5.375%, 6/30/00, valued at $9,811 (COST
$9,398)........................................ 9,398
-----------
TOTAL INVESTMENTS (100.0%) (COST $56,317)..................... 56,317
OTHER LIABILITIES IN EXCESS OF ASSETS (0.0%).................. (15)
-----------
NET ASSETS (100%)............................................. $56,302
-----------
-----------
</TABLE>
-----------------------
81
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
CORPORATE BONDS AND NOTES (69.9%)
AEROSPACE & DEFENSE (2.0%)
$ (e)200 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13........................................ $ 272
(e)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14........................................ 406
-------
678
-------
BROADCAST--RADIO & TELEVISION (6.3%)
(e)300 AMSC Acquisition Co., Units 12.25%, 4/1/08....... 282
530 Lenfest Communications 8.375%, 11/1/05........... 563
350 Paramount Communications 8.25%, 8/1/22........... 370
60 Rogers Communications, Inc. 9.125%, 1/15/06...... 61
650 Rogers Communications, Inc. 8.875%, 7/15/07...... 654
(n)335 TCI Satellite Entertainment 0.00%, 2/15/07....... 226
-------
2,156
-------
BUILDING MATERIALS & COMPONENTS (1.4%)
490 American Standard Cos., Inc. 7.375%, 2/1/08...... 481
-------
CAPITAL GOODS/CONSTRUCTION (1.6%)
540 Murrin Murrin Holdings 9.375%, 8/31/07........... 532
-------
CHEMICALS (1.8%)
600 ISP Holdings, Inc., Series B, 9.00%, 10/15/03.... 626
-------
COMPUTERS (0.9%)
275 Advanced Micro Devices 11.00%, 8/1/03............ 291
-------
DIVERSIFIED (1.1%)
375 Kmart Funding Corp. 8.80%, 7/1/10................ 388
-------
ELECTRICAL EQUIPMENT (1.8%)
360 AES Corp. 8.50%, 11/1/07......................... 365
(e)325 Hyundai Semiconductor 8.625%, 5/15/07............ 252
-------
617
-------
ENERGY (1.9%)
325 Quezon Power Ltd. 8.86%, 6/15/17................. 274
380 Snyder Oil Corp. 8.75%, 6/15/07.................. 384
-------
658
-------
ENTERTAINMENT & LEISURE (1.2%)
400 Musicland Group, Inc. 9.875%, 3/15/08............ 398
-------
ENVIRONMENTAL CONTROLS (2.0%)
(n)600 Norcal Waste Systems 13.50%, 11/15/05............ 690
-------
FINANCE (3.9%)
410 CSC Holdings, Inc. 9.875%, 5/15/06............... 450
275 CSC Holdings, Inc. 7.875%, 12/15/07.............. 290
(e)190 Flag Ltd. 8.25%, 1/30/08......................... 192
(e,n)180 Fuji JGB Investments LLC 9.87%, 12/31/49......... 160
(e,n)235 SB Treasury Co. LLC 9.40%, 12/29/49.............. 234
-------
1,326
-------
FINANCIAL SERVICES (2.5%)
(e)100 CEX Holdings, Inc. 9.625%, 6/1/08................ 101
150 HMC Acquisition Properties 9.00%, 12/15/07....... 165
(n)425 PTC International Finance BV 0.00%, 7/1/07....... 292
140 Pindo Deli Fin Mauritius 10.75%, 10/1/07......... 97
225 Western Financial Bank 8.875%, 8/1/07............ 211
-------
866
-------
FOOD (0.7%)
94 Fleming Cos., Inc., Series B 10.50%, 12/1/04..... 98
(e)150 Smithfield Foods, Inc. 7.625%, 2/15/08........... 150
-------
248
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
FOOD SERVICE & LODGING (1.0%)
$ 335 Host Marriott Travel Plaza, 'B', 9.50%,
5/15/05........................................ $ 357
-------
FOREST PRODUCTS & PAPER (1.4%)
215 Asia Pulp & Paper Co., Ltd. 12.00%, 2/15/04...... 150
305 SD Warren Co., Series B, 12.00%, 12/15/04........ 338
-------
488
-------
GAMING & LODGING (2.4%)
445 Grand Casinos, Inc. 10.125%, 12/1/03............. 481
320 Station Casinos, Inc. 10.125%, 3/15/06........... 357
-------
838
-------
HEALTH CARE SUPPLIES & SERVICES (5.1%)
30 Columbia/HCA Healthcare, 8.125%, 8/4/03.......... 31
540 Columbia/HCA Healthcare, 6.91%, 6/15/05.......... 522
275 Columbia/HCA Healthcare, 7.69%, 6/15/25.......... 264
920 Tenet Healthcare Corp. 8.625%, 1/15/07........... 949
-------
1,766
-------
MULTI-INDUSTRY (9.1%)
(e)150 AST Research, Inc. 7.45%, 10/1/02................ 124
410 Comcast Cellular Holdings 9.50%, 5/1/07.......... 427
210 Globalstar LP/Capital 11.375%, 2/15/04........... 204
275 Hermes Europe Railtel BV 11.50%, 8/15/07......... 311
(e)200 Hylsa SA de CV 9.25%, 9/15/07.................... 188
235 Multicanal S.A. 10.50%, 2/1/07................... 235
325 Navistar Financial Corp., Series B, 9.00%,
6/1/02......................................... 340
355 Outdoor Systems, Inc., 8.875%, 6/15/07........... 370
(e)240 RBS Participacoes S.A. 11.00%, 4/1/07............ 217
(e)200 Samsonite Corp. 10.75%, 6/15/08.................. 199
325 TV Azteca S.A. de CV, Series B 10.50%, 2/15/07... 327
(e)200 Vencor, Inc. 9.875%, 5/1/05...................... 197
-------
3,139
-------
PAPER (1.5%)
500 Indah Kiat Financial Mauritius 10.00%, 7/1/07.... 355
(e)170 Norampac, Inc. 9.50%, 2/1/08..................... 173
-------
528
-------
PERSONAL CARE PRODUCTS (0.8%)
260 Revlon Consumer Products 8.125%, 2/1/06.......... 260
-------
RETAIL--GENERAL (2.9%)
500 Fred Meyer, Inc. 7.375%, 3/1/05.................. 503
550 Southland Corp. 5.00%, 12/15/03.................. 478
-------
981
-------
SERVICES (0.7%)
255 CB Richard Ellis Service 8.875%, 6/1/06.......... 253
-------
TECHNOLOGY (0.2%)
(e,n)160 Rhythms Netconnections 0.00%, 5/15/08............ 78
-------
TELECOMMUNICATIONS (15.0%)
(e)145 American Cellular Corp. 10.50%, 5/15/08.......... 146
(n)190 Dial Call Communications, Series B, 0.00%,
12/15/05....................................... 188
(e,n)255 Dolphin Telecommunication plc 0.00%, 6/1/08...... 145
(e)200 Globo Communications 10.50%, 12/20/06............ 182
(e)195 IXC Communications, Inc. 9.00%, 4/15/08.......... 195
(n)810 Intermedia Communications, Series B, 0.00%,
7/15/07........................................ 591
100 Iridium LLC/Capital Corp., Series A 13.00%,
7/15/05........................................ 107
(e)150 Lenfest Communications 7.625%, 2/15/08........... 154
(e)155 Level 3 Communications, Inc. 9.125%, 5/1/08...... 150
</TABLE>
- --------------
82
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS (CONT.)
$ (e,n)425 NEXTLINK Communications, Inc. 0.00%, 4/15/08..... $ 260
(n)440 Nextel Communications 0.00%, 8/15/04............. 427
(n)900 Nextel Communications 0.00%, 9/15/07............. 603
(n)400 Occidente Y Caribe 0.00%, 3/15/04................ 348
(e)195 Onepoint Communications Corp., 14.50%, 6/1/08.... 183
215 Philippine Long Distance Telephone 7.85%,
3/6/07......................................... 193
(e)260 Primus Telecommunications Group 9.875%, 5/15/08.. 255
100 Qwest Communications International, Series B,
10.875%, 4/1/07................................ 115
(e,n)150 Qwest Communications International 0.00%,
2/1/08......................................... 108
(n)155 RCN Corp. 0.00%, 10/15/07........................ 100
(n)370 RCN Corp 0.00%, 2/15/08.......................... 225
17 RSL Communications plc 12.25%, 11/15/06.......... 19
(e)115 RSL Communications plc 9.125%, 3/1/08............ 112
150 Rogers Cantel, Inc. 8.30%, 10/1/07............... 147
(e)55 Satelites Mexicanos S.A. 10.125%, 11/1/04........ 53
(e)180 Total Access Communications 2.00%, 5/31/06....... 140
-------
5,146
-------
UTILITIES (0.7%)
65 Korea Electric Power 7.75%, 4/1/13............... 48
90 Niagara Mohawk Power 'G' 7.75%, 10/1/08.......... 92
(n)163 Niagara Mohawk Power 'H' 0.00%, 7/1/10........... 112
-------
252
-------
TOTAL CORPORATE BONDS AND NOTES (COST $24,029)................ 24,041
-------
ASSET BACKED SECURITIES (4.8%)
AEROSPACE & DEFENSE (0.5%)
175 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D 12.75%, 6/15/06......... 174
-------
FINANCIAL SERVICES (4.3%)
(e)241 CA FM Lease Trust 8.50%, 7/15/17................. 253
(e)235 Commercial Financial Services, Inc., Series
1997-5, Class A1 7.72%, 6/15/05................ 237
(e,h)315 DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class S, IO, 1.64%, 11/12/21................... 25
150 DR Securitized Lease Trust, Series 1993-K1, Class
A2 7.43%, 8/15/18.............................. 139
471 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07............................. 466
100 DR Securitized Lease Trust, Series 1994-K1, Class
A2, 8.375%, 8/15/15............................ 100
(e)122 First Home Mortgage Acceptance Corp., Series
1996-B, Class C, 7.93%, 11/1/18................ 110
(e)167 Long Beach Acceptance Auto Grantor Trust 1997-1,
Class B, 14.22%, 10/26/03...................... 166
-------
1,496
-------
TOTAL ASSET BACKED SECURITIES (COST $1,578)................... 1,670
-------
FOREIGN GOVERNMENT BONDS (1.2%)
BONDS (1.2%)
(n)90 Republic of Argentina BOCON, Series 2, PIK,
0.00%, 9/1/02.................................. 110
(h)328 Republic of Argentina, Series L, Floating Rate,
6.625%, 3/31/05................................ 290
-------
TOTAL FOREIGN GOVERNMENT BONDS (COST $394).................... 400
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
PREFERRED STOCKS (3.5%)
ENTERTAINMENT AND LEISURE (2.5%)
773 Time Warner, Inc., Series M, 10.25%.............. $ 860
-------
TELECOMMUNICATIONS (0.3%)
(e)1,000 Concentric Network Corp., 13.50%................. 100
4 IXC Communications, Inc. PIK 9.50%............... 5
-------
105
-------
MULTI-INDUSTRY ( 0.7%)
2,150 Sinclair Capital, 11.625%........................ 238
-------
TOTAL PREFERRED STOCKS (COST $1,123).......................... 1,203
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
<C> <S> <C>
- ----------
UNITS (0.3%)
TELECOMMUNICATIONS (0.3%)
(e,n)170 Viatel, Inc, 0.00%, 4/15/08 (COST $108).......... 102
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ----------
WARRANTS (0.1%)
TELECOMMUNICATIONS (0.1%)
(a,e)100 Concentric Network Corp., expiring 12/15/07...... --
(a,e)210 Globalstar Telecom, expiring 2/15/04............. 26
(a,e)1,600 Occidente Y Caribe, expiring 3/15/04............. --
-------
TOTAL WARRANTS (COST $0)...................................... 26
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENTS (18.7%)
DISCOUNT NOTES (14.5%)
$ 1,000 Federal Home Mortgage Corp., 5.46%, 7/10/98...... 999
2,000 Federal Home Mortgage Corp., 5.43%, 7/14/98...... 1,996
2,000 Federal Home Mortgage Corp., 5.45%, 7/20/98...... 1,994
-------
4,989
-------
REPURCHASE AGREEMENT (4.2%)
1,424 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $1,424,
collateralized by $885 U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $1,455.......... 1,424
-------
TOTAL SHORT-TERM INVESTMENTS (COST $6,413).................... 6,413
-------
TOTAL INVESTMENTS (98.5%) (COST $33,645)...................... 33,855
OTHER ASSETS IN EXCESS OF LIABILITIES (1.5%).................. 523
-------
NET ASSETS (100%)............................................. $34,378
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing security
(e) -- 144A Security -- Certain conditions for public sale may exist.
(h) -- Variable/Floating rate securities -- rate disclosed is as of June 30,
1998.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1998. Maturity date disclosed is the
ultimate maturity date.
IO -- Interest Only
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
-----------------------
83
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
HIGH YIELD & TOTAL RETURN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
SUMMARY OF SECURITIES BY COUNTRY (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
COUNTRY (000) NET ASSETS
- ------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
United States.................................................................. $ 28,038 81.5%
Canada......................................................................... 1,035 3.0
Argentina...................................................................... 635 1.9
Netherlands.................................................................... 603 1.8
Mexico......................................................................... 568 1.6
Australia...................................................................... 533 1.5
Philippines.................................................................... 467 1.4
Brazil......................................................................... 399 1.2
Indonesia...................................................................... 355 1.0
Colombia....................................................................... 348 1.0
Korea.......................................................................... 300 0.9
Bermuda........................................................................ 192 0.6
United Kingdom................................................................. 145 0.4
Thailand....................................................................... 140 0.4
Mauritius...................................................................... 97 0.3
---------- ---
$ 33,855 98.5%
---------- ---
---------- ---
</TABLE>
- --------------
84
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
COMMON STOCKS (85.8%)
AUSTRALIA (1.2%)
35,000 Australia & New Zealand Banking Group Ltd........ $ 242
9,150 Brambles Industries Ltd.......................... 180
18,600 Commonwealth Bank of Australia................... 217
6,200 Lend Lease Corp. Ltd............................. 125
14,500 National Australia Bank Ltd...................... 191
40,240 News Corp., Ltd.................................. 329
33,200 Seven Network Ltd................................ 100
112,500 Telstra Corp., Ltd............................... 289
--------
1,673
--------
AUSTRIA (0.6%)
12,000 Boehler-Udderholm AG............................. 793
--------
BELGIUM (0.6%)
14,430 G.I.B. Holdings Ltd.............................. 814
--------
DENMARK (3.5%)
56,900 BG Bank A/S...................................... 3,527
12,500 Unidanmark A/S 'A' (Registered).................. 1,124
--------
4,651
--------
FINLAND (4.9%)
11,500 Huhtamaki Oyj 'I'................................ 658
6,675 Kone Oyj 'B'..................................... 937
113,900 Merita Ltd. 'A'.................................. 752
32,399 Metra Oyj 'B'.................................... 1,064
19,800 Partek Oyj Abp................................... 343
77,900 Rautaruukki Oyj.................................. 597
11,450 Sampo Insurance Co., Ltd., Class A............... 543
40,050 The Rauma Group.................................. 822
50,000 Valmet Oyj....................................... 863
--------
6,579
--------
FRANCE (8.9%)
2,200 Alcatel Alsthom.................................. 448
1,139 Bongrain S.A..................................... 572
6,642 Cie de Saint-Gobain.............................. 1,231
10,670 Elf Aquitaine S.A................................ 1,500
10,900 France Telecom S.A............................... 752
5,300 Groupe Danone RFD................................ 1,461
8,700 Lafarge S.A...................................... 899
18,988 Legris Industries S.A............................ 889
7,770 Michelin (C.G.D.E.) 'B'.......................... 448
10,400 Rhone-Poulenc S.A. 'A'........................... 586
4,600 Scor............................................. 292
(a)8,400 SGS-Thomson Microelectronics N.V................. 595
11,600 Total S.A. 'B'................................... 1,508
3,270 Union des Assurances Federales................... 515
16,450 Usinor Sacilor................................... 254
--------
11,950
--------
GERMANY (10.8%)
31,800 BASF AG.......................................... 1,508
19,900 Bayer AG......................................... 1,027
8,300 Bayer Vereinsbank AG............................. 706
2,660 Buderus AG....................................... 1,327
2,780 Dyckerhoff AG.................................... 1,107
25,110 Gerresheimer Glas AG............................. 377
6,000 Hornbach Holding AG.............................. 551
14,020 Metro AG......................................... 851
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
(a)4,040 Philip Holzmann AG............................... $ 968
6,260 Plettac AG....................................... 875
2,320 Suedzucker AG.................................... 1,411
15,000 Veba AG.......................................... 1,023
1,790 Viag AG.......................................... 1,211
1,583 Volkswagen AG.................................... 1,523
--------
14,465
--------
HONG KONG (0.7%)
28,400 CLP Holdings Ltd................................. 129
134,600 Hong Kong & China Gas Co., Ltd................... 153
5,500 Hong Kong & Shanghai Bank Holdings plc........... 135
55,500 Hong Kong Electric Holdings Ltd.................. 172
63,200 Hong Kong Telecommunications Ltd................. 119
22,600 Hutchison Whampoa Ltd............................ 119
49,000 Li & Fung Ltd.................................... 79
25,000 Television Broadcasting Ltd...................... 66
--------
972
--------
ITALY (3.7%)
275,000 Magneti Marelli S.p.A............................ 604
55,400 Marzotto (Gaetano) & Figli S.p.A................. 845
111,600 Mediaset S.p.A................................... 712
255,800 Sogefi S.p.A..................................... 857
388,224 Telecom Italia S.p.A............................. 1,880
--------
4,898
--------
JAPAN (11.8%)
47,000 Amada Co., Ltd................................... 229
4,000 Autobacs Seven Co., Ltd.......................... 115
21,000 Canon, Inc....................................... 477
31,000 Casio Computer Co., Ltd.......................... 288
21,000 Dai Nippon Printing Co., Ltd..................... 336
85,000 Daicel Chemical Industries Ltd................... 180
45,000 Daifuku Co., Ltd................................. 168
41,000 Daikin Industries Ltd............................ 264
4,100 Family Mart...................................... 156
17,000 Fuji Machine Manufacturing Co.................... 451
13,000 Fuji Photo Film Co............................... 453
28,000 Fujitec Co., Ltd................................. 170
49,000 Fujitsu Ltd...................................... 516
68,000 Furukawa Electric................................ 229
14,000 Hitachi Credit Corp.............................. 236
72,000 Hitachi Ltd...................................... 470
13,000 Inabata & Co..................................... 40
50,000 Kaneka Corp...................................... 263
17,000 Kurita Water Industries.......................... 201
7,700 Kyocera Corp..................................... 377
18,000 Kyudenko Co., Ltd................................ 118
18,000 Lintec Corp...................................... 157
32,000 Matsushita Electric Industrial Co., Ltd.......... 515
92,000 Mitsubishi Chemical Corp......................... 167
26,000 Mitsubishi Estate Co., Ltd....................... 229
85,000 Mitsubishi Heavy Industries Ltd.................. 321
22,000 Mitsumi Electric Co., Ltd........................ 389
8,000 Murata Manufacturing Co., Inc.................... 260
51,000 NEC Corp......................................... 476
23,000 Nifco, Inc....................................... 182
6,000 Nintendo Corp., Ltd.............................. 556
1,000 Nippon Pillar Packing............................ 4
56 Nippon Telephone & Telegraph Corp................ 465
</TABLE>
-----------------------
85
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
101,000 Nissan Motor Co., Ltd............................ $ 318
17,000 Nissha Printing Co., Ltd......................... 104
9,000 Ono Pharmaceutical Co., Ltd...................... 215
45,000 Ricoh Co., Ltd................................... 474
12,000 Rinnai........................................... 182
9,000 Sangetsu Co., Ltd................................ 116
21,000 Sankyo Co., Ltd.................................. 479
30,000 Sanwa Shutter Corp............................... 132
28,000 Sekisui Chemical Co.............................. 143
22,000 Sekisui House Ltd................................ 171
6,000 Shimamura Co., Ltd............................... 162
38,000 Shin-Etsu Polymer Co., Ltd....................... 153
6,900 Sony Corp........................................ 595
12,000 Sumitomo Marine & Fire Insurance Co.............. 67
28,000 Suzuki Motor Co., Ltd............................ 254
7,000 TDK Corp......................................... 518
12,000 Tokyo Electron Ltd............................... 368
117,000 Toshiba Corp..................................... 479
19,000 Toyota Motor Corp................................ 492
67,000 Tsubakimoto Chain Co............................. 225
23,000 Yamaha Corp...................................... 224
22,000 Yamanuchi Pharmaceutical Co...................... 459
--------
15,788
--------
MALAYSIA (0.1%)
5,000 Carlsberg Brewery Malaysia Bhd................... 15
25,000 Guiness Anchor Bhd............................... 27
8,000 Nestle Bhd....................................... 36
7,600 Rothmans of Pall Mall Bhd........................ 53
--------
131
--------
NETHERLANDS (4.4%)
29,600 ABN Amro Holding N.V............................. 693
6,300 Akzo Nobel N.V................................... 1,401
28,943 ING Groep N.V.................................... 1,896
2,400 Koninklijke Bijenkorf Beheer..................... 168
34,900 Koninklijke KNP BT N.V........................... 901
9,600 Phillips Electronics N.V......................... 808
--------
5,867
--------
NEW ZEALAND (0.1%)
56,000 AMP NZ Office Trust.............................. 26
1,840 Fletcher Challenge Forests....................... 1
4,000 Telecom Corp. of New Zealand Ltd. IR............. 9
8,800 Telecom Corp. of New Zealand Ltd................. 36
--------
72
--------
NORWAY (1.1%)
67,800 Saga Petroleum ASA 'B'........................... 960
15,600 Sparebanken NOR.................................. 448
--------
1,408
--------
SINGAPORE (0.2%)
(a)6,200 Creative Technology Ltd.......................... 75
45,000 NatSteel Ltd..................................... 75
21,000 United Overseas Bank Ltd. (Foreign).............. 65
23,000 Venture Manufacturing Ltd........................ 44
--------
259
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
SPAIN (3.5%)
27,800 Banco Bilbao Vizcaya, S.A. (Registered).......... $ 1,427
100,100 Iberdrola S.A.................................... 1,625
13,050 Telefonica de Espana............................. 603
(a)1,386 Telefonica de Espana............................. 64
69,100 Uralita S.A...................................... 985
--------
4,704
--------
SWEDEN (6.1%)
31,700 Autoliv Inc., Swedish Depository Receipt......... 1,013
27,600 BT Industries AB................................. 557
41,600 Esselte AB 'B'................................... 965
1,810 Fastighets AB Balder............................. 18
214,900 Nordbanken Holding AB............................ 1,576
16,300 Pharmicia & Upjohn, Inc. Depository Shares....... 750
56,300 PLM AB........................................... 889
2,200 S.K.F. AB 'B'.................................... 40
20,300 Spectra-Physics AB 'A'........................... 325
40,200 Svedala Industries AB............................ 932
23,500 Svenska Handelsbanken 'A'........................ 1,090
--------
8,155
--------
SWITZERLAND (6.8%)
30 Ascom Holding AG (Bearer)........................ 56
470 Bobst AG (Bearer)................................ 865
824 Cie Financiere Richemont AG, Class A............. 1,079
1,910 Forbo Holding AG (Registered).................... 973
1,245 Holderbank Financiere Glarus AG 'B' (Bearer)..... 1,585
970 Nestle S.A. (Registered)......................... 2,077
80 Schindler Holding AG (Participating
Certificates).................................. 122
434 Schindler Holding AG (Registered)................ 673
830 Schweizerische Industrie-Gesellschaft Holding AG
(Registered)................................... 676
3,530 Valora Holding AG (Registered)................... 932
--------
9,038
--------
UNITED KINGDOM (16.8%)
327,000 Aegis Group plc.................................. 530
50,689 Bank of Ireland.................................. 1,040
69,762 Bank of Scotland................................. 782
195,611 BG plc........................................... 1,132
85,500 British Telecommunications plc................... 1,057
134,988 BTR plc, Class B................................. 383
101,100 Bunzl plc........................................ 474
67,450 Burmah Castrol plc............................... 1,205
55,100 Capital Radio plc................................ 654
134,100 Charter plc...................................... 1,401
28,375 Commercial Union plc............................. 530
700 Danka Business Systems plc....................... 2
48,983 Diageo plc....................................... 581
104,900 Glynwed International plc........................ 432
66,700 Great Universal Stores plc....................... 880
25,200 Halma plc........................................ 52
148,200 Imperial Tobacco Group plc....................... 1,094
38,898 John Mowlem & Co. plc............................ 94
78,425 Lonrho Africa plc................................ 368
(a)58,425 Lonrho Africa plc................................ 70
320,700 Medeva plc....................................... 910
29,500 Peninsular & Oriental Steam Navigation Co........ 425
126,000 Premier Farnell plc.............................. 640
1,804,100 Premier Oil plc.................................. 1,273
</TABLE>
- --------------
86
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
84,768 Reckitt & Colman plc............................. $ 1,619
14,500 RMC Group plc.................................... 252
98,882 Royal & Sun Alliance Insurance Group plc......... 1,023
347,300 Scapa Group plc.................................. 1,102
107,100 SIG plc.......................................... 402
36,350 Tate & Lyle plc.................................. 288
33,600 Unilever plc..................................... 358
35,500 Westminster Health Care Holdings plc............. 189
204,100 WPP Group plc.................................... 1,339
--------
22,581
--------
TOTAL COMMON STOCKS (COST $104,799)........................... 114,798
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
CONVERTIBLE DEBENTURE (0.0%)
NEW ZEALAND (0.0%)
$ (a)56 AMP Office Trust, 7.50%, 6/30/03 (COST $33)...... 25
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ----------
RIGHTS (0.0%)
GERMANY (0.0%)
(a)14,020 Metro AG (COST $0)............................... 1
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ----------
WARRANTS (0.0%)
HONG KONG (0.0%)
(a)5,300 Hong Kong and China Gas Co., Ltd. (expiring
9/30/99) (COST $0)............................. --
--------
TOTAL FOREIGN SECURITIES (85.8%) (COST $104,832).............. 114,824
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENT (14.0%)
REPURCHASE AGREEMENT (14.0%)
$ 18,731 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $18,734,
collateralized by $18,690 U.S. Treasury Notes,
5.625%, due 2/15/06, valued at $19,163 (COST
$18,731)....................................... $ 18,731
--------
TOTAL INVESTMENTS IN SECURITIES (99.8%) (COST $123,563)....... 133,555
--------
FOREIGN CURRENCY (0.5%)
BEF 491 Belgian Franc.................................... 13
GBP 116 British Pound.................................... 193
DKK 1 Danish Krone..................................... --
FIM 718 Finnish Marka.................................... 131
FRF 657 French Franc..................................... 109
DEM 52 German Mark...................................... 29
HKD 672 Hong Kong Dollar................................. 87
ITL 71,350 Italian Lira..................................... 40
JPY 9,579 Japanese Yen..................................... 69
MYR 8 Malaysian Ringgit................................ 2
NZD 3 New Zealand Dollar............................... 2
SGD 2 Singapore Dollar................................. 1
ESP 73 Spanish Peseta................................... --
CHF 35 Swiss Franc...................................... 23
--------
TOTAL FOREIGN CURRENCY (COST $698)............................ 699
--------
TOTAL INVESTMENTS (100.3%) (COST $124,261).................... 134,254
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%)................. (376)
--------
NET ASSETS (100%)............................................. $133,878
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
RFD -- Ranked for Dividend
-----------------------
87
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 62 $ 62 7/1/98 FIM 343 $ 62 $ --
$ 76 76 7/1/98 DEM 138 76 --
$ 112 112 7/1/98 SEK 895 112 --
$ 15 15 7/2/98 MYR 64 15 --
BEF 491 13 7/2/98 $ 13 13 --
HKD 619 80 7/2/98 $ 80 80 --
ITL 71,336 40 7/2/98 $ 40 40 --
$ 295 295 7/7/98 SGD 503 298 3
SGD 503 298 7/7/98 $ 285 285 (13)
DEM 1,714 951 7/14/98 $ 942 942 (9)
$ 1,647 1,647 7/16/98 JPY 226,434 1,638 (9)
JPY 226,434 1,638 7/16/98 $ 1,768 1,768 130
CHF 1,286 850 7/21/98 $ 868 868 18
$ 2,513 2,513 7/29/98 JPY 344,961 2,500 (13)
JPY 344,961 2,500 7/29/98 $ 2,685 2,685 185
DEM 1,714 953 8/14/98 $ 972 972 19
$ 301 301 8/19/98 JPY 41,135 299 (2)
JPY 259,357 1,885 8/19/98 $ 1,962 1,962 77
JPY 320,073 2,334 9/10/98 $ 2,343 2,343 9
DEM 317 177 9/14/98 $ 176 176 (1)
DEM 1,323 737 9/14/98 $ 734 734 (3)
JPY 376,055 2,749 9/28/98 $ 2,761 2,761 12
JPY 506,990 3,722 10/26/98 $ 3,587 3,587 (135)
--------- --------- -----
$ 23,948 $ 24,216 $ 268
--------- --------- -----
--------- --------- -----
</TABLE>
- ---------------
BEF -- Belgian Franc
CHF -- Swiss Franc
DEM -- German Mark
FIM -- Finnish Markka
HKD -- Hong Kong Dollar
ITL -- Italian Lira
JPY -- Japanese Yen
MYR -- Malaysian Ringgit
SEK -- Swedish Krona
SGD -- Singapore Dollars
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
MARKET PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Capital Equipment............................................................ $ 28,326 21.2%
Consumer Goods............................................................... 23,891 17.8
Finance...................................................................... 19,770 14.8
Materials.................................................................... 17,121 12.8
Services..................................................................... 11,767 8.8
Energy....................................................................... 8,400 6.3
Multi-Industry............................................................... 5,549 4.1
--------- ---
$ 114,824 85.8%
--------- ---
--------- ---
</TABLE>
- --------------
88
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
LATIN AMERICAN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (65.6%)
ARGENTINA (9.6%)
125,350 Telecom Argentina S.A. ADR....................... $ 3,737
105,508 Telefonica de Argentina ADR...................... 3,423
27,410 YPF ADR.......................................... 824
-------
7,984
-------
BRAZIL (15.1%)
48,643 CEMIG ADR........................................ 1,506
(e)835 CEMIG ADR........................................ 26
49,950 CVRD ADR......................................... 1,056
(a)2,289,172 Companhia de Electricidade do Estado do Rio de
Janeiro........................................ 1,128
201,955 Copel............................................ 1,886
(e)31,925 Coteminas ADR.................................... 435
(a)600,500 Iven............................................. 301
(a,e)10,410 Lojas Arapua ADR................................. 6
(e)44,275 Petrobras ADR.................................... 826
187,805 Rossi Residencial S.A. GDS....................... 939
(e)60,287 Rossi Residencial S.A............................ 301
26,491 Telebras ADR..................................... 2,892
43,762 Unibanco GDR..................................... 1,291
-------
12,593
-------
CHILE (6.9%)
5,440 Banco Edwards ADR................................ 77
10,475 Banco Santander ADR.............................. 135
10,060 Banco Santiago ADR............................... 168
35,150 CCU ADR.......................................... 743
66,060 Chilectra ADR.................................... 1,404
19,606 Cia Telecom ADR.................................. 398
24,110 D & S ADR........................................ 362
64,153 Empressa Nacional de Electricidad S.A. ADR....... 914
30,245 Enersis S.A. ADR................................. 739
9,460 Gener ADR........................................ 173
32,200 Quinenco ADR..................................... 290
28,582 Santa Isabel S.A. ADR............................ 314
-------
5,717
-------
COLOMBIA (0.7%)
575 BanColombia...................................... 1
60,609 Bavaria.......................................... 354
110,584 Valores Bavaria SA............................... 190
-------
545
-------
MEXICO (33.3%)
(a)466,867 Banacci 'B'...................................... 909
(a)166,310 Banacci 'L'...................................... 268
2,801,313 Bancomer 'B'..................................... 1,044
92,140 Carso 'A1'....................................... 379
70,254 Cemex 'B' ADR.................................... 620
588,061 Cemex 'CPO'...................................... 2,204
16,110 Cemex ADR........................................ 121
152,600 Cemex S.A. de C.V. 'B'........................... 673
520,115 Cifra 'B'........................................ 773
75,850 Cifra 'C'........................................ 105
3,522 Cifra ADR........................................ 52
58,253 FEMSA ADR........................................ 1,835
(a)138,292 FEMSA............................................ 4,307
64,630 Groupo Modelo 'C'................................ 543
205,270 Grupo Industrial Bimbo S.A. de CV 'A'............ 406
574,974 Kimberly 'A'..................................... 2,030
461,233 Soriana 'B'...................................... 1,324
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
126,698 Telemex ADR...................................... $ 6,089
(a)100,258 Televisa CPO ADR................................. 3,772
27,190 TV Azteca ADR.................................... 294
-------
27,748
-------
TOTAL COMMON STOCKS (COST $62,319).................................. 54,587
-------
PREFERRED STOCKS (29.5%)
BRAZIL (NON-VOTING STOCKS) (29.5%)
(a,d)8,115,000 Banco Nacional................................... --
126,469,735 CEMIG............................................ 3,937
9,617,022 CRT.............................................. 10,486
18,500 CVRD............................................. 368
(a)44,859 Centrais Geradoras do Sul do Brasil S.A.......... 61
1,689,000 Cia Cimento Portland Itau........................ 299
2,492,000 Coteminas........................................ 679
2,961,000 Encorpar ADR..................................... 7
64,912,167 Gerdau........................................... 898
8,000 Globex Utilidades S.A............................ 69
(a)19,195,300 Lojas Arapua S.A................................. 12
21,326,700 Lojas Renner S.A................................. 627
(a)11,891 TELESP Class B................................... 987
48,604,783 Telebras......................................... 5,287
(a)14,670 Telerj Celular S.A............................... 863
(a)31,997 Vale Do Rio Doce ADR............................. --
-------
TOTAL PREFERRED STOCKS (COST $30,177)............................... 24,580
-------
TOTAL FOREIGN SECURITIES (95.1%) (COST $92,496)..................... 79,167
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------------
SHORT-TERM INVESTMENT (3.3%)
REPURCHASE AGREEMENT (3.3%)
$ 2,772 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $2,772,
collateralized by $1,725 U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $2,836 (COST
$2,772)........................................ 2,772
-------
TOTAL INVESTMENT IN SECURITIES (98.4%) (COST $95,268)............... 81,939
-------
FOREIGN CURRENCY (1.4%)
ARP 482 Argentine Peso................................... 482
BRL 267 Brazilian Real................................... 231
COP 6,920 Colombian Peso................................... 5
MXP 3,465 Mexican Peso..................................... 385
PSS 3 Peruvian New Sol................................. 1
VEB 10,387 Venezuelan Bolivar............................... 19
-------
TOTAL FOREIGN CURRENCY (COST $1,126)................................ 1,123
-------
TOTAL INVESTMENTS (99.8%) (COST $96,394)............................ 83,062
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)........................ 160
-------
NET ASSETS (100%)................................................... $83,222
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing security
(d) -- Security valued at fair value--see note A-1 to financial statements
(e) -- 144A Security--certain conditions for public sale may exist
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
-----------------------
89
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
LATIN AMERICAN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1998, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ----- ------------- --------------- ----- -----------------
<S> <C> <C> <C> <C> <C>
MXP 2,158 $ 240 7/1/98 $ 240 $ 240 $ --
</TABLE>
- ---------------
MXP -- Mexican Peso
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------------------------------------ --------- -------------
<S> <C> <C>
Services...................................................................... $ 41,509 49.9%
Energy........................................................................ 13,424 16.1
Consumer Goods................................................................ 11,891 14.3
Materials..................................................................... 6,239 7.5
Finance....................................................................... 5,134 6.2
Multi-Industry................................................................ 970 1.1
--------- ---
$ 79,167 95.1%
--------- ---
--------- ---
</TABLE>
- --------------
90
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (4.2%)
FEDERAL HOME LOAN MORTGAGE CORP. DISCOUNT NOTES (4.2%)
$ 5,000 5.46%, 4/21/99 (COST $4,998)..................... $ 4,998
---------
COMMERCIAL PAPER (47.2%)
AUTOMOBILES (5.8%)
4,000 Daimler-Benz 5.57%, 8/12/98...................... 3,974
3,000 Ford Motor Credit Corp. 5.48%, 7/16/98........... 2,993
---------
6,967
---------
CONSUMER STAPLES (7.8%)
3,000 Eastman Kodak Co. 5.55%, 8/25/98................. 2,975
3,000 H.J. Heinz Co. 5.49%, 7/22/98.................... 2,990
3,300 Monsanto Co. 5.50%, 7/9/98....................... 3,296
---------
9,261
---------
FINANCIAL SERVICES (11.6%)
3,000 American Express Credit Corp. 5.51%, 8/28/98..... 2,973
3,000 General Electric 5.50%, 9/15/98.................. 2,965
2,000 International Lease Finance 5.54%, 7/16/98....... 1,995
3,000 Merrill Lynch 5.54%, 7/30/98..................... 2,987
3,000 Metlife Funding 5.54%, 9/9/98.................... 2,968
---------
13,888
---------
SPECIAL PURPOSE ENTITY (7.5%)
3,000 Atlantic Asset Security 5.54%, 7/10/98........... 2,996
3,000 Citation Capital 5.55%, 7/27/98.................. 2,988
3,000 Greenwich Funding 5.53%, 7/20/98................. 2,991
---------
8,975
---------
TELECOMMUNICATIONS (2.0%)
2,340 SBC Communication 5.50%, 8/6/98.................. 2,327
---------
U.S. BANKS (5.0%)
3,000 Bank of America 5.52%, 8/21/98................... 2,977
3,000 J.P. Morgan & Co. 5.47%, 7/16/98................. 2,993
---------
5,970
---------
UTILITIES (2.5%)
3,000 National Rural 5.50%, 8/7/98..................... 2,983
---------
INSURANCE (5.0%)
3,000 General RE Insurance 5.51%, 9/3/98............... 2,971
3,000 USAA Capital Corp. 5.47%, 7/10/98................ 2,996
---------
5,967
---------
TOTAL COMMERCIAL PAPER (COST $56,338)........................ 56,338
---------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (25.1%)
NON U.S. BANKS (10.0%)
$ 3,000 Canadian Imperial Bank (Yankee) 5.94%, 10/23/98.. $ 3,000
3,000 Credit Agricole (Yankee) 5.66%, 3/29/99.......... 2,998
2,000 National Westminster Bank 5.53%, 8/5/98.......... 2,000
4,000 Swiss Bank, New York 5.83%, 12/16/98............. 3,999
---------
11,997
---------
U.S. BANKS (10.0%)
1,000 ABN-AMRO Bank N.V., Chicago (Yankee) 5.65%,
3/22/99........................................ 1,000
2,000 ABN-AMRO Bank N.V., Chicago (Yankee) 5.75%,
3/31/99........................................ 1,999
3,000 Bank of Austria, New York (Yankee) 5.74%,
4/26/99........................................ 2,999
3,000 Bank of Montreal, Chicago (Yankee) 5.80%,
11/6/98........................................ 2,999
(h)3,000 Societe Generale Bank, New York (Yankee) 5.59%,
1/19/99........................................ 2,999
---------
11,996
---------
FOREIGN BONDS (5.1%)
(h)3,000 Bayerische Landesbank 5.52%, 6/29/99............. 2,998
(h)3,000 Royal Bank of Canada, New York 5.53%, 6/29/99.... 2,998
---------
5,996
---------
TOTAL CERTIFICATES OF DEPOSIT (COST $29,989)................. 29,989
---------
CORPORATE FLOATING RATE NOTES (6.7%)
BANKS (4.2%)
(h)3,000 Banc One, Dayton 5.84%, 8/21/98.................. 3,000
(h)2,000 First Union National Bank 5.79%, 5/17/99......... 2,000
---------
5,000
---------
TECHNOLOGY (2.5%)
(h)3,000 IBM Credit Corp. 5.66%, 11/20/98................. 3,000
---------
TOTAL CORPORATE FLOATING RATE NOTES (COST $8,000)............ 8,000
---------
REPURCHASE AGREEMENT (16.4%)
19,615 J.P. Morgan Securities, Inc., 5.50%, dated
6/30/98, due 7/1/98, to be repurchased at
$19,618, collateralized by U.S. Treasury Notes,
5.375%, 6/30/00, valued at $20,048 (COST
$19,615)....................................... 19,615
---------
TOTAL INVESTMENTS (99.6%) (COST $118,940).................... 118,940
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)................. 436
---------
NET ASSETS (100%)............................................ $119,376
---------
---------
</TABLE>
- ---------------
(h) -- Variable/floating rate security -- rate disclosed is as of June 30,
1998.
-----------------------
91
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
COMMON STOCKS (94.2%)
DIVERSIFIED (7.5%)
6,900 Capital Automotive REIT.......................... $ 98
1,400 Crescent Real Estate Equities Co. REIT........... 47
41,400 Pacific Gulf Properties, Inc. REIT............... 895
26,800 Pennsylvania Real Estate Investment Trust........ 595
11,100 Vornado Realty Trust............................. 440
(a)45,351 Wellsford Properties, Inc........................ 641
-------
2,716
-------
LAND (0.2%)
(a)45,224 Atlantic Gulf Communities Corp................... 93
-------
LODGING/RESORTS (8.5%)
(a)18,800 Capstar Hotel Co................................. 526
(a)34,400 Host Marriott Corp............................... 613
(a)12,200 John Q. Hammons Hotels, Inc...................... 86
34,251 Starwood Lodging Trust REIT...................... 1,655
(a)13,000 Station Casinos, Inc............................. 191
-------
3,071
-------
OFFICE/INDUSTRIAL (37.2%)
INDUSTRIAL (2.4%)
8,200 Meridian Industrial Trust REIT................... 189
41,200 Prime Group Realty Trust......................... 705
-------
894
-------
OFFICE/INDUSTRIAL MIXED (3.5%)
6,500 Bedford Property Investors, Inc. REIT............ 119
19,100 Reckson Associates Realty Corporation REIT....... 451
3,056 Reckson Service Industries, Inc.................. 10
17,500 Spieker Properties, Inc. REIT.................... 678
-------
1,258
-------
OFFICE (31.3%)
70,800 Arden Realty Group, Inc.......................... 1,832
(e,d)37,100 Beacon Capital Partners, Inc..................... 742
60,766 Brandywine Realty Trust REIT..................... 1,360
99,700 Brookfield Properties Corp....................... 1,372
62,700 CarrAmerica Realty Corp. REIT.................... 1,779
43,706 Equity Office Properties Trust REIT.............. 1,240
48,000 Great Lakes Inc. REIT............................ 837
17,600 Kilroy Realty Corp. REIT......................... 440
16,300 Mack-Cali Realty Corp............................ 560
28,600 SL Green Realty Corp............................. 644
25,200 Trizec Hahn Corp................................. 540
-------
11,346
-------
TOTAL OFFICE/INDUSTRIAL........................................ 13,498
-------
RESIDENTIAL (19.5%)
APARTMENTS (13.8%)
38,300 Avalon Bay Communities, Inc. REIT................ 1,455
2,300 Charles E. Smith Residential Realty, Inc......... 74
10,800 Equity Residential Properties Trust.............. 512
40,000 Essex Property Trust, Inc. REIT.................. 1,240
19,900 Irvine Apartment Communities, Inc. REIT.......... 576
47,032 Security Capital Atlantic, Inc................... 1,050
3,700 Security Capital Pacific Trust REIT.............. 83
-------
4,990
-------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
MANUFACTURED HOMES (5.7%)
63,148 Chateau Communities, Inc. REIT................... $ 1,815
3,300 Manufactured Home Communities, Inc. REIT......... 80
5,300 Sun Communities, Inc............................. 176
-------
2,071
-------
TOTAL RESIDENTIAL.............................................. 7,061
-------
RETAIL (17.0%)
REGIONAL MALLS (7.1%)
18,100 CBL & Associates Properties, Inc. REIT........... 439
103,000 Taubman Center, Inc. REIT........................ 1,468
21,500 Urban Shopping Centers, Inc. REIT................ 677
-------
2,584
-------
STRIP CENTERS (9.9%)
79,600 Burnham Pacific Property Trust REIT.............. 1,129
61,000 Federal Realty Investment Trust REIT............. 1,468
22,200 Pan Pacific Retail Properties, Inc. REIT......... 430
200 Ramco-Gershenson Properties Trust REIT........... 4
21,700 Regency Realty Corp. REIT........................ 545
-------
3,576
-------
TOTAL RETAIL................................................... 6,160
-------
SELF STORAGE (4.3%)
9,379 PS Business Parks, Inc. 'A' REIT................. 220
25,788 PS Business Parks, Inc........................... 606
11,100 Public Storage, Inc. REIT........................ 311
15,300 Shurgard Storage Centers, Inc. 'A' REIT.......... 425
-------
TOTAL SELF STORAGE............................................. 1,562
-------
TOTAL COMMON STOCKS (COST $34,037)............................. 34,161
-------
PREFERRED STOCKS (0.7%)
LAND (0.3%)
(a,f)5,829 Atlantic Gulf Communities Corp................... 41
(a,f)8,207 Atlantic Gulf Communities Corp................... 57
-------
98
-------
RETAIL (0.4%)
STRIP CENTER (0.4%)
5,500 First Washington Realty Trust, Inc. 'A'.......... 159
-------
TOTAL PREFERRED STOCKS (COST $294)............................. 257
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------
CONVERTIBLE BONDS (0.6%)
OFFICE/INDUSTRIAL (0.6%)
$ (a)224 Brookfield Properties Corp. 6.00%, 2/14/07 (COST
$173).......................................... 220
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- -----------
WARRANTS (0.0%)
LAND (0.0%)
(a,f)9,609 Atlantic Gulf Communities Corp., Class A,
expiring 6/23/04............................... 5
(a,f)9,609 Atlantic Gulf Communities Corp., Class B,
expiring 6/23/04............................... 5
(a,f)9,609 Atlantic Gulf Communities Corp., Class C,
expiring 6/23/04............................... 5
-------
TOTAL WARRANTS (COST $0)....................................... 15
-------
</TABLE>
- --------------
92
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.5%)
REPURCHASE AGREEMENT (1.5%)
$ 537 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $537,
collateralized by $335, U.S. Treasury Bonds,
11.25%, due 2/15/15, valued at $551 (COST
$537).......................................... $ 537
-------
TOTAL INVESTMENTS (97.0%) (COST $35,041)....................... 35,190
OTHER ASSETS IN EXCESS OF LIABILITIES (3.0%)................... 1,067
-------
NET ASSETS (100%).............................................. $36,257
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing security
(e) -- 144A Security--certain conditions for public sale may exist.
(d) -- Security valued at fair value--see note A-1 to financial statements.
(f) -- Restricted as to public resale. Total value of restricted securities
at June 30, 1998 was $113 or 0.31% of net assets (Total cost $140).
REIT -- Real Estate Investment Trust
-----------------------
93
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (86.0%)
CAPITAL EQUIPMENT (22.9%)
CHEMICALS--DIVERSIFIED (3.4%)
29,700 Dow Chemical Co.................................. $ 2,872
40,710 Du Pont (EI) de Nemours Co....................... 3,038
31,560 Rohm & Haas Co................................... 3,280
52,000 The Lubrizol Corp................................ 1,573
--------
10,763
--------
CONSTRUCTION & HOUSING (1.5%)
110,420 Owens Corning.................................... 4,507
--------
ELECTRICAL & ELECTRONICS (0.8%)
64,400 Electronic Data Systems Corp..................... 2,576
--------
ELECTRIC UTILITIES (1.2%)
53,580 DTE Energy Co.................................... 2,163
54,690 Entergy Corp..................................... 1,572
--------
3,735
--------
ELECTRONIC COMPONENTS--MISCELLANEOUS (2.5%)
(a)76,560 Arrow Electronics, Inc........................... 1,665
51,300 Avnet, Inc....................................... 2,806
96,110 Tektronix, Inc................................... 3,400
--------
7,871
--------
HEALTHCARE--MEDICAL DEVICE (1.5%)
83,330 Beckman Coulter, Inc............................. 4,854
--------
INDUSTRIAL COMPONENTS (2.0%)
106,990 Aeroquip-Vickers, Inc............................ 6,245
--------
MACHINERY & ENGINEERING (7.4%)
158,300 Case Corp........................................ 7,638
37,900 Caterpillar, Inc................................. 2,004
106,700 Cummins Engine................................... 5,468
300 Deere & Co....................................... 16
115,660 Harnischfeger Industries, Inc.................... 3,275
65,950 Kennametal, Inc.................................. 2,753
56,725 Parker-Hannifin Corp............................. 2,163
--------
23,317
--------
MANUFACTURING (2.0%)
20,000 Eaton Corp....................................... 1,555
(a)31,510 FMC Corp......................................... 2,148
51,670 Tecumseh Products Co. 'A'........................ 2,729
--------
6,432
--------
PROFESSIONAL SERVICES (0.6%)
175,470 Olsten Corp...................................... 1,963
--------
TOTAL CAPITAL EQUIPMENT........................................... 72,263
--------
CONSUMER PRODUCTS--MISCELLANEOUS (28.1%)
AUTOMOBILES (9.6%)
56,690 Dana Corp........................................ 3,033
157,930 Ford Motor Co.................................... 9,318
127,180 General Motors Corp.............................. 8,497
95,900 Goodyear Tire & Rubber Co........................ 6,180
57,860 TRW, Inc......................................... 3,161
--------
30,189
--------
CONSUMER SERVICES (0.4%)
32,970 Standard Register Co............................. 1,166
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
COMPUTERS/SOFTWARE (3.5%)
76,900 International Business Machines Corp............. $ 8,829
(a)86,300 Stratus Computer, Inc............................ 2,184
--------
11,013
--------
CONSUMER PRODUCTS--MISCELLANEOUS (0.5%)
59,910 Tupperware Corp.................................. 1,685
--------
HEALTHCARE SUPPLIES & SERVICES (3.2%)
112,070 Columbia HCA/Healthcare Corp..................... 3,264
(a)127,400 Foundation Health Systems 'A'.................... 3,360
34,410 Mallinckrodt, Inc................................ 1,022
(a)60,310 Maxicare Health Plans, Inc....................... 407
(a)51,100 Tenet Healthcare Corp............................ 1,597
(a)20,900 Vencor, Inc...................................... 151
16,600 Ventas, Inc...................................... 229
--------
10,030
--------
RETAIL--GENERAL (0.7%)
(a)118,100 Venator Group, Inc............................... 2,259
--------
RETAIL--MAJOR DEPARTMENT STORES (4.5%)
93,420 Dillards, Inc. 'A'............................... 3,871
(a)39,310 Federated Department Stores...................... 2,115
59,300 Sears, Roebuck & Co.............................. 3,621
(a)191,640 Toys 'R' Us, Inc................................. 4,516
--------
14,123
--------
TEXTILES & APPAREL (2.8%)
63,230 Russell Corp..................................... 1,909
48,520 Springs Industries, Inc. 'A'..................... 2,238
90,940 VF Corp.......................................... 4,683
--------
8,830
--------
TOBACCO (2.9%)
143,240 Philip Morris Cos., Inc.......................... 5,640
153,340 RJR Nabisco Holdings Corp........................ 3,642
--------
9,282
--------
TOTAL CONSUMER PRODUCTS--MISCELLANEOUS............................ 88,577
--------
ENERGY (4.4%)
ELECTRIC--INTEGRATED (1.4%)
32,970 Cinergy Corp..................................... 1,154
27,400 Duke Power Co.................................... 1,623
43,340 GPU, Inc......................................... 1,639
--------
4,416
--------
OIL & GAS (3.0%)
(a)83,000 Nabors Industries, Inc........................... 1,645
49,660 Phillips Petroleum Co............................ 2,393
75,070 Ultramar Diamond Shamrock Corp................... 2,369
103,400 YPF ADR.......................................... 3,108
--------
9,515
--------
TOTAL ENERGY...................................................... 13,931
--------
FINANCE (18.9%)
BANKING (4.9%)
108,840 Chase Manhattan Corp............................. 8,218
24,330 Citicorp......................................... 3,631
</TABLE>
- --------------
94
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<C> <S> <C>
BANKING (CONT.)
14,050 Crestar Financial Corp........................... $ 767
46,640 Republic New York Corp........................... 2,935
--------
15,551
--------
INSURANCE (4.8%)
45,440 Allstate Corp.................................... 4,161
35,020 Hartford Financial Services Group................ 4,006
21,100 Loews Corp....................................... 1,838
106,805 Old Republic International Corp.................. 3,131
46,850 Washington Mutual, Inc........................... 2,035
--------
15,171
--------
LIFE INSURANCE (1.0%)
46,040 American General Corp............................ 3,277
--------
LIFE/HEALTH INSURANCE (1.5%)
69,200 CIGNA Corp....................................... 4,775
--------
REINSURANCE (2.9%)
78,710 Everest Reinsurance Holdings, Inc................ 3,025
71,980 Reliastar Financial Corp......................... 3,455
32,965 Transatlantic Holdings, Inc...................... 2,549
--------
9,029
--------
SUPER-REGIONAL BANKS--U.S. (3.8%)
57,100 Banc One Corp.................................... 3,187
112,889 First Union Corp. (N.C.)......................... 6,576
30,600 NationsBank Corp................................. 2,341
--------
12,104
--------
TOTAL FINANCE..................................................... 59,907
--------
MATERIALS (6.3%)
CHEMICALS (4.1%)
44,400 Air Products & Chemicals, Inc.................... 1,776
40,130 British Petroleum ADR............................ 3,541
36,110 Cabot Corp....................................... 1,167
75,230 Great Lakes Chemical Corp........................ 2,967
73,200 IMC Global, Inc.................................. 2,205
(a)87,400 W.R. Grace & Co.................................. 1,491
--------
13,147
--------
ENERGY (1.0%)
40,610 Atlantic Richfield Co............................ 3,173
--------
FOREST PRODUCTS & PAPER (0.4%)
41,820 Westvaco Corp.................................... 1,181
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
METALS--STEEL (0.8%)
89,700 Inland Steel Industries, Inc..................... $ 2,528
--------
TOTAL MATERIALS................................................... 20,029
--------
SERVICES (5.4%)
FOOD--MISCELLANEOUS (1.4%)
78,410 IBP, Inc......................................... 1,421
138,820 Universal Foods Corp............................. 3,080
--------
4,501
--------
TELECOMMUNICATIONS EQUIPMENT (1.2%)
82,700 Bell Atlantic Corp............................... 3,773
--------
TRANSPORTATION--AIRLINES (2.0%)
(a)31,180 AMR Corp......................................... 2,596
26,800 Delta Airlines, Inc.............................. 3,464
--------
6,060
--------
TRANSPORTATION--RAIL (0.8%)
6,200 Burlington Northern Railroad Co.................. 609
44,280 CSX Corp......................................... 2,015
--------
2,624
--------
TOTAL SERVICES.................................................... 16,958
--------
TOTAL COMMON STOCKS (COST $270,443)................................. 271,665
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------------
SHORT-TERM INVESTMENT (13.6%)
REPURCHASE AGREEMENT (13.6%)
$ 42,983 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $42,989,
collateralized by $43,900 U.S. Treasury Notes,
5.50%, due 12/31/00, valued at $45,087 (COST
$42,983)....................................... 42,983
--------
TOTAL INVESTMENTS (99.6%) (COST $313,426)........................... 314,648
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)........................ 1,104
--------
NET ASSETS (100%)................................................... $315,752
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
-----------------------
95
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
CORPORATE BONDS & NOTES (37.7%)
ARGENTINA (2.4%)
ARP(e)8,500 CIA International Telecommunication 10.375%,
8/1/04......................................... $ 7,013
--------
AUSTRALIA (0.5%)
$ 1,500 Murrin Murrin Holdings 9.375%, 8/31/07........... 1,479
--------
BRAZIL (1.5%)
(h)4,500 Banco Nacional Desenv Econ 10.30%, 6/16/08....... 4,493
--------
CANADA (0.9%)
400 Rogers Cablesystems Ltd. 10.125%, 9/1/12......... 436
865 Rogers Cablesystems Ltd., Series B, 10.00%,
3/15/05........................................ 961
1,080 Rogers Cantel, Inc. 8.30%, 10/1/07............... 1,056
250 Rogers Communications, Inc. 9.125%, 1/15/06...... 253
100 Rogers Communications, Inc. 8.875%, 7/15/07...... 101
--------
2,807
--------
KOREA (2.6%)
(e)3,200 Export-Import Bank of Korea, 6.50%, 10/6/99...... 3,020
5,900 Korea Electric Power 6.375%, 12/1/03............. 4,651
--------
7,671
--------
MEXICO (1.4%)
4,200 TV Azteca S.A. 10.125%, 2/15/04.................. 4,211
--------
NETHERLANDS (3.0%)
475 Hermes Europe Railtel BV 11.50%, 8/15/07......... 537
(n)1,500 PTC International Finance BV 0.00%, 7/1/07....... 1,031
6,100 SBS Argo Finance BV 10.25%, 7/21/00.............. 4,636
3,375 Tjiwi Kimia International B.V. 13.25%, 8/1/01.... 2,684
--------
8,888
--------
TURKEY (1.9%)
ZAR(e)2,500 Pera Financial Services 9.375%, 10/15/02......... 2,231
$ 500 Pera Financial Services 9.375%, 10/15/02......... 446
3,150 Yapi Kredi Finance Co. 10.00%, 8/19/02........... 3,095
--------
5,772
--------
UNITED KINGDOM (0.3%)
(e,n)1,000 Dolphin Telecommunication plc 0.00%, 6/1/08...... 570
DEM (e)625 Esprit Telecommunication Group plc 11.00%,
6/15/08........................................ 347
--------
917
--------
UNITED STATES (23.2%)
$ 1,025 AES Corp. 8.50%, 11/1/07......................... 1,038
2,930 American Standard Cos., Inc. 7.375%, 2/1/08...... 2,878
625 Advanced Micro Devices 11.00%, 8/1/03............ 661
(e)964 CA FM Lease Trust 8.50%, 7/15/17................. 1,012
700 CB Richard Ellis Service 8.875%, 6/1/06.......... 695
(e)600 CEX Holdings, Inc. 9.625%, 6/1/08................ 606
(e)2,060 Chesapeake Energy Corp., 9.625%, 5/1/05.......... 2,070
85 Columbia/HCA Healthcare 8.125%, 8/4/03........... 87
425 Columbia/HCA Healthcare 6.91%, 6/15/05........... 410
790 Columbia/HCA Healthcare, 7.00%, 7/1/07........... 758
2,500 Columbia/HCA Healthcare, 7.69%, 6/15/25.......... 2,403
2,945 Comcast Cellular Holdings, Series B 9.50%,
5/1/07......................................... 3,070
3,105 CSC Holdings, Inc. 9.875%, 5/15/06............... 3,412
150 CSC Holdings, Inc. 7.875%, 12/15/07.............. 158
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
805 DR Securitized Lease Trust, Series 1993-K1, Class
A1, 6.66%, 8/15/10............................. $ 752
963 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07............................. 952
250 DR Securitized Lease Trust, Series 1994-K1, Class
A2, 8.375%, 8/15/15............................ 250
150 DR Structured Finance, Series 1994-K2, CMO,
9.35%, 8/15/19................................. 159
(n)1,025 Dial Call Communications, Series B, 0.00%,
12/15/05....................................... 1,015
(e)300 EES Coke Battery Co., Inc. 9.382%, 4/15/07....... 314
49 Fleming Cos., Inc., Series B 10.50%, 12/1/04..... 51
(e)900 Fresenius Medical Capital Trust II 7.875%,
2/1/08......................................... 877
200 Globalstar LP/Capital 11.375%, 2/15/04........... 195
1,610 Grand Casinos, Inc. 10.125%, 12/1/03............. 1,739
625 HMC Acquisition Properties 9.00%, 12/15/07....... 689
950 Host Marriott Travel Plaza, Series B, 9.50%,
5/15/05........................................ 1,012
1,970 ISP Holdings, Inc., Series B, 9.00%, 10/15/03.... 2,054
(e)735 IXC Communications, Inc. 9.00%, 4/15/08.......... 737
(e,n)2,765 Intermedia Communications, Series B, 0.00%,
7/15/07........................................ 2,018
320 Iridium LLC/Capital Corp., Series A 13.00%,
7/15/05........................................ 342
(e)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14........................................ 406
(e)300 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13........................................ 409
1,150 Kmart Funding Corp. 8.80%, 7/1/10................ 1,190
1,425 Lenfest Communications 8.375%, 11/1/05........... 1,514
(e)70 Lenfest Communications 7.625%, 2/15/08........... 72
950 Musicland Group, Inc. 9.875%, 3/15/08............ 945
(e,n)1,760 NEXTLINK Communications, Inc. 0.00%, 4/15/08..... 1,078
(e)525 NSM Steel Lts. Units 12.25%, 2/1/08.............. 462
200 Navistar Financial Corp., Series B, 9.00%,
6/1/02......................................... 209
(n)565 Nextel Communications 0.00%, 8/15/04............. 548
(n)2,775 Nextel Communications 0.00%, 9/15/07............. 1,859
256 Niagara Mohawk Power Series G 7.75%, 10/1/08..... 262
(n)442 Niagara Mohawk Power Series H 0.00%, 7/1/10...... 304
(n)990 Norcal Waste Systems 13.50%, 11/15/05............ 1,139
(e)735 Onepoint Communications Corp., Units 14.50%,
6/1/08......................................... 691
1,020 Outdoor Systems, Inc., 8.875%, 6/15/07........... 1,063
2,400 Paramount Communications 8.25%, 8/1/22........... 2,537
(e)325 Primus Telecommunications Group 9.875%,
5/15/08........................................ 318
(e)165 Psinet, Inc. 10.00%, 2/15/05..................... 168
320 Qwest Communications International, Series B,
10.875%, 4/1/07................................ 369
(n)2,305 Qwest Communications International 0.00%,
10/15/07....................................... 1,729
(e,n)440 Qwest Communications International 0.00%,
2/1/08......................................... 317
(n)3,465 RCN Corp. 0.00%, 10/15/07........................ 2,235
35 RSL Communications Ltd. 12.25%, 11/15/06......... 39
</TABLE>
- --------------
96
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
$ (e)1,540 RSL Communications Ltd. 9.125%, 3/1/08........... $ 1,494
1,000 Revlon Consumer Products 8.125%, 2/1/06.......... 999
(e,n)425 SB Treasury Co. LLC 9.40%, 12/29/49.............. 423
800 SD Warren Co., Series B, 12.00%, 12/15/04........ 886
(e)2,000 Samsung Electronics Co. 9.75%, 5/1/03............ 1,797
900 Sinclair Broadcast Group 9.00%, 7/15/07.......... 927
(e)530 Smithfield Foods, Inc. 7.625%, 2/15/08........... 529
1,360 Snyder Oil Corp. 8.75%, 6/15/07.................. 1,374
2,232 Southland Corp. 5.00%, 12/15/03.................. 1,939
825 Station Casinos, Inc. 9.75%, 4/15/07............. 931
(n)1,475 TCI Satellite Entertainment 0.00%, 2/15/07....... 996
(n)1,075 Teleport Communications 0.00%, 7/1/07............ 926
1,980 Tenet Healthcare Corp. 8.625%, 1/15/07........... 2,042
500 Tenet Healthcare Corp. 8.125%, 12/1/08........... 503
(e,n)750 Wam!Net, Inc. 0.00%, 3/1/05...................... 476
595 Western Financial Bank 8.875%, 8/1/07............ 558
--------
69,077
--------
TOTAL CORPORATE BONDS & NOTES (COST $114,989)................. 112,328
--------
ASSET BACKED SECURITIES (0.7%)
UNITED STATES (0.7%)
(e)698 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D 12.75%, 6/15/06......... 698
(e)894 Commercial Financial Services, Inc., Series
1997-5, Class A1 7.72%, 6/15/05................ 900
(e)633 Long Beach Acceptance Auto Grantor Trust 1997-1,
Class B, 14.22%, 10/26/03...................... 632
--------
TOTAL ASSET BACKED SECURITIES (COST $2,235)................... 2,230
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%)
UNITED STATES (0.9%)
36,916 DLJ Mortgage Acceptance Corp., Series 1997-CF2,
Class S, IO, 0.36%, 10/15/30................... 958
(e,h)1,016 DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class S, IO, 1.64%, 11/12/21................... 83
(e)535 First Home Mortgage Acceptance Corp., Series
1996-B, Class C, 7.93%, 11/1/18................ 483
1,137 OHA Grantor Trust, 11.00%, 9/15/03............... 1,120
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $2,568)....... 2,644
--------
EUROBONDS (5.2%)
ARGENTINA (2.8%)
(e,h)2,500 Acindar Industria Argentina 11.55%, 11/12/98..... 2,523
(h)6,470 Republic of Argentina, Series L, 6.625%,
3/31/05........................................ 5,722
--------
8,245
--------
RUSSIA (1.2%)
(e)5,050 Mosenergo Finance BV 8.375%, 10/9/02............. 3,529
--------
TURKEY (1.2%)
3,750 Export Credit Bank of Turkey 9.00%, 8/18/00...... 3,713
--------
TOTAL EUROBONDS (COST $17,021)................................ 15,487
--------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS (41.5%)
ARGENTINA (3.5%)
11,400 Republic of Argentina 9.75%, 9/19/27............. 10,568
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
BRAZIL (10.6%)
$ 12,100 Federative Republic of Brazil, 9.375%, 4/7/08.... $ 10,878
(h)14,793 Federative Republic of Brazil, Series EI-L,
Floating Rate 6.625%, 4/15/06.................. 12,181
11,718 Republic of Brazil "C" PIK 8.00%, 4/15/14........ 8,635
--------
31,694
--------
BULGARIA (1.1%)
(n)5,500 Bulgaria Front Loaded Interest Reduction Bond
2.25%, 7/28/12................................. 3,407
--------
COLOMBIA (0.9%)
(h)2,778 Republic of Colombia Hercules 6.875%, 12/15/03... 2,598
--------
ECUADOR (1.0%)
(e)3,000 Conecel 14.00%, 5/1/02........................... 3,000
--------
JAMAICA (1.7%)
3,000 Government of Jamaica 12.00%, 7/19/99............ 3,090
(e)300 Government of Jamaica 10.875%, 6/10/05........... 300
2,000 Mechala Group Jamaica Ltd., Series B 12.75%,
12/30/99....................................... 1,840
--------
5,230
--------
MEXICO (9.5%)
ZAR 8,000 National Financiera 17.00%, 2/26/99.............. 1,325
$ 7,700 United Mexican States 9.875%, 1/15/07............ 8,014
3,500 United Mexican States 8.625%, 3/12/08............ 3,397
8,950 United Mexican States 11.375%, 9/15/16........... 9,979
4,900 United Mexican States 11.50%, 5/15/26............ 5,570
--------
28,285
--------
PERU (0.9%)
(e,n)3,950 Republic of Peru Front Loaded Interest Reduction
Bond 3.25%, 3/7/17............................. 2,207
700 Republic of Peru Front Loaded Interest Reduction
Bond 3.25%, 3/7/17............................. 391
--------
2,598
--------
RUSSIA (11.1%)
6,000 Ministry of Finance 14.00%, 5/19/99.............. 5,078
(e)8,050 Ministry of Finance 11.75%, 6/10/03.............. 7,124
13,950 Ministry of Finance 10.00%, 6/26/07.............. 10,550
(e)7,400 Ministry of Finance 12.75%, 6/24/28.............. 6,614
208 Republic of Russia 6.625%, 12/15/15.............. 116
4 Ministry of Finance Tranche VI GDR 3.00%,
5/14/03........................................ 2
(e)3,800 Unexim International Finance BV 9.875%, 8/1/00... 2,893
900 Unexim International Finance BV 9.875%, 8/1/00... 685
--------
33,062
--------
THAILAND (0.8%)
2,290 Kingdom of Thailand 8.70%, 8/1/99................ 2,297
--------
VENEZUELA (0.4%)
(h)1,357 Republic of Venezuela Discount Bond, Series L,
6.625%, 12/18/07............................... 1,111
--------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS
(COST $133,981)............................................. 123,850
--------
</TABLE>
-----------------------
97
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
LOAN AGREEMENTS (2.5%)
GABON (1.1%)
$ (h)4,376 Republic of Gabon Syndicated Loan, 6.69%,
4/1/04......................................... $ 3,479
--------
JAMAICA (0.3%)
(h)938 Republic of Jamaica Syndicated Loan, 6.44%,
12/1/05........................................ 858
--------
RUSSIA (1.1%)
(h)6,750 Republic of Russia Syndicated Loan, 3.31%,
12/15/20....................................... 3,206
--------
TOTAL LOAN AGREEMENTS (COST $8,080)............................. 7,543
--------
<CAPTION>
SHARES
- ------------
<C> <S> <C>
PREFERRED STOCKS (1.1% )
UNITED STATES (1.1%)
(a)3,250 Concentric Network Corp. 13.50%.................. 323
(a)17 IXC Communications, Inc. PIK 9.50%............... 20
3 Time Warner, Inc., Series M, 10.25%.............. 2,986
--------
TOTAL PREFERRED STOCKS (COST $3,298)............................ 3,329
--------
UNITS (0.4%)
UNITED STATES (0.4%)
(e)885 AMSC Acquisition Co. 12.25%, 4/1/08.............. 832
(e,n)500 Viatel, Inc. 0.00%, 4/15/08...................... 301
--------
TOTAL UNITS (COST $1,216)....................................... 1,133
--------
<CAPTION>
NO. OF
WARRANTS
- ------------
<C> <S> <C>
WARRANTS (0.0%)
UNITED STATES (0.0%)
(a)325 Concentric Network Corp. (COST $0)............... --
--------
TOTAL FOREIGN & U.S. SECURITIES (90.0%) (COST $283,388)......... 268,544
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.9%)
<C> <S> <C>
REPURCHASE AGREEMENT (3.9% )
$ 11,543 Chase Securities, Inc., 5.40%, dated 6/30/98, due
7/1/98, to be repurchased at $11,545,
collateralized by $10,410 U.S. Treasury Notes,
7.875%, due 11/15/04, valued at $11,799.
(COST $11,543)................................. $ 11,543
--------
TOTAL INVESTMENTS IN SECURITIES (93.9%) (COST $294,931)......... 280,087
--------
FOREIGN CURRENCY (0.2%)
FRF 3,213 French Franc (COST $569)......................... 531
--------
TOTAL INVESTMENTS (94.1%) (COST $295,500)....................... 280,618
OTHER ASSETS IN EXCESS OF LIABILITIES (5.9%).................... 17,559
--------
NET ASSETS (100%)............................................... $298,177
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing security
(e) -- 144A Security - certain conditions for public sale may exist.
(h) -- Variable/floating rate security - rate disclosed is as of June 30,
1998.
(n) -- Step Bond - coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1998. Maturity date disclosed is the
ultimate maturity date.
ARP -- Argentine Peso
DEM -- German Mark
FRF -- French Franc
GDR -- Global Depositary Receipt
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
IO -- Interest only
ZAR -- South African Rand
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1998, the
Fund is obligated to deliver or is to receive foreign currency in exchange for
U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ------ ---------- ----------- ------ --------------
<S> <C> <C> <C> <C> <C>
DEM 625 $ 348 9/25/98 $ 351 $ 351 $ 4
ZAR 8,226 1,384 7/7/98 $1,600 1,600 215
------ ------ -----
$1,732 $1,951 $219
------ ------ -----
------ ------ -----
</TABLE>
- ---------------
DEM -- German Mark
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES
BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Foreign Government & Agency Obligations............................................... $ 123,850 41.6%
Multi-Industry........................................................................ 38,210 12.8
Telecommunications.................................................................... 27,121 9.1
Finance............................................................................... 23,958 8.0
Eurobonds............................................................................. 15,487 5.2
Services.............................................................................. 11,322 3.8
Loan Agreements....................................................................... 7,543 2.5
Collateralized Mortgage Obligations & Asset Backed Securities......................... 4,874 1.6
Consumer Goods........................................................................ 4,074 1.4
Broadcast--Radio & Television......................................................... 3,265 1.1
Technology............................................................................ 2,458 0.8
Materials............................................................................. 2,054 0.7
Utilities............................................................................. 1,604 0.6
Energy................................................................................ 1,374 0.4
Transportation........................................................................ 1,350 0.4
--------- ---
$ 268,544 90.0%
--------- ---
--------- ---
</TABLE>
- --------------
98
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998
<TABLE>
<CAPTION>
GOVERNMENT
GLOBAL GLOBAL OBLIGATIONS
AGGRESSIVE AMERICAN ASIAN EMERGING GLOBAL EQUITY FIXED MONEY
EQUITY VALUE GROWTH MARKETS EQUITY ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value
See accompanying portfolios $ 218,999 $614,977 $ 97,565 $141,340 $771,187 $ 609,960 $7,602 $ 56,317
Foreign Currency -- -- 6,231 2,073 2,159 1,543 5 --
Cash -- -- -- -- 1 -- -- --
Margin Deposit on Futures -- -- -- -- -- 4,224 -- --
Receivable for:
Investments Sold 3,422 8,168 385 1,148 -- 99 -- --
Variation of Futures Contracts -- -- -- -- -- 518 -- --
Fund Shares Sold 1,715 7,810 177 408 3,166 1,902 14 --
Dividends 86 324 348 429 1,672 1,374 -- --
Interest 2 10 1 377 7 19 180 102
Security Lending Income -- -- -- -- -- 13 -- --
Foreign Withholding Tax Reclaim -- -- 24 41 342 301 -- --
Net Unrealized Gain on Foreign
Currency Exchange Contracts -- -- -- 763 -- -- 11 --
Deferred Organizational Costs 26 1 -- 3 35 -- -- --
Receivable from Investment Adviser -- -- 26 -- -- -- 16 --
Securities, at Value, Held as
Collateral for Securities Loaned -- -- -- -- -- 21,788 -- --
Other 1 3 53 2 5 56 -- 7
---------- -------- -------- -------- -------- ---------- ------ ----------
Total Assets 224,251 631,293 104,810 146,584 778,574 641,797 7,828 56,426
---------- -------- -------- -------- -------- ---------- ------ ----------
LIABILITIES:
Payable for:
Investments Purchased 4,001 11,702 955 723 2,321 3,890 -- --
Fund Shares Redeemed 338 930 1,247 1,844 447 17,200 31 --
Bank Overdraft -- -- -- 2,218 -- 6 -- 2
Dividends Declared 6 -- -- -- -- 54 23 58
Investment Advisory Fees 82 255 -- 38 625 384 -- 18
Administrative Fees 43 119 23 35 158 109 2 2
Custody Fees 4 1 233 394 83 346 3 1
Professional Fees 18 18 40 43 49 70 20 17
Distribution Fees 262 684 127 178 1,175 554 6 20
Shareholder Reporting Expenses 24 52 29 18 71 94 6 --
Transfer Agent Fees 23 46 36 20 61 244 6
Directors' Fees and Expenses 5 8 16 10 9 49 5 6
Securities Lending Expense -- -- -- -- -- 15 -- --
Filing and Registration Fees 40 141 -- 9 202 19 -- --
Deferred Country Tax -- -- 21 27 -- -- -- --
Collateral on Securities Loaned -- -- -- -- -- 21,788 -- --
Net Unrealized Loss on Foreign
Currency Exchange Contracts -- -- 1 -- 64 513 -- --
Unrealized Loss on Swap Agreements -- -- -- 932 -- -- -- --
Other 1 -- 5 33 -- 382 -- --
---------- -------- -------- -------- -------- ---------- ------ ----------
Total Liabilities 4,847 13,956 2,733 6,522 5,265 45,717 102 124
---------- -------- -------- -------- -------- ---------- ------ ----------
NET ASSETS $ 219,404 $617,337 $102,077 $140,062 $773,309 $ 596,080 $7,726 $ 56,302
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
</TABLE>
-----------------------
99
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
HIGH
YIELD WORLDWIDE
& TOTAL INTERNATIONAL LATIN MONEY U.S. REAL HIGH
RETURN MAGNUM AMERICAN MARKET ESTATE VALUE INCOME
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value
See accompanying portfolios $ 33,855 $ 133,555 $ 81,939 $ 118,940 $ 35,190 $ 314,648 $ 280,087
Foreign Currency -- 699 1,123 -- -- -- 531
Cash -- -- 66 -- 5 69 1,878
Receivable for:
Investments Sold -- 419 336 -- 1,045 1,714 12,012
Fund Shares Sold 360 1,928 266 -- 145 2,067 2,617
Dividends -- 309 230 -- 298 378 1
Interest 470 3 -- 657 5 6 6,707
Security Lending Income -- -- -- -- -- -- --
Foreign Withholding Tax Reclaim -- 105 -- -- -- -- --
Net Unrealized Gain on Foreign
Currency Exchange Contracts -- 268 -- -- -- -- 219
Deferred Organizational Costs 14 22 3 -- 11 6 3
Other -- 1 3 41 13 2 2
-------- --------- --------- --------- ---------- ---------- ----------
Total Assets 34,699 137,309 83,966 119,638 36,712 318,890 304,057
-------- --------- --------- --------- ---------- ---------- ----------
LIABILITIES:
Payable for:
Investments Purchased -- 2,716 -- -- 249 1,488 2,408
Fund Shares Redeemed 31 358 356 -- 106 836 609
Bank Overdraft 7 6 -- 156 -- -- --
Dividends Declared 192 -- -- 40 6 -- 2,070
Investment Advisory Fees 6 45 116 35 6 195 183
Administrative Fees 7 28 24 1 8 65 62
Custody Fees 2 69 73 -- 9 35 24
Professional Fees 15 19 21 17 15 36 35
Distribution Fees 44 131 99 1 37 346 388
Shareholder Reporting Expenses 6 13 12 -- 4 26 17
Transfer Agent Fees 4 19 26 1 6 16 28
Directors' Fees and Expenses 4 5 6 11 5 6 9
Filing and Registration Fees 3 22 5 -- 4 89 39
Country Tax -- -- 5 -- -- -- --
Other -- -- 1 -- -- -- 8
-------- --------- --------- --------- ---------- ---------- ----------
Total Liabilities 321 3,431 744 262 455 3,138 5,880
-------- --------- --------- --------- ---------- ---------- ----------
NET ASSETS $ 34,378 $ 133,878 $ 83,222 $ 119,376 $ 36,257 $ 315,752 $ 298,177
-------- --------- --------- --------- ---------- ---------- ----------
-------- --------- --------- --------- ---------- ---------- ----------
</TABLE>
- ------------------
100
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
GOVERNMENT
GLOBAL GLOBAL OBLIGATIONS
AGGRESSIVE AMERICAN ASIAN EMERGING GLOBAL EQUITY FIXED MONEY
EQUITY VALUE GROWTH MARKETS EQUITY ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 11 $ 21 $ 16 $ 18 $ 70 $ 233 $ 1 $ 62
Paid in Capital in Excess of Par 198,527 565,577 253,634 206,540 709,605 500,322 7,794 56,291
Undistributed (Distributions in
Excess of) Net Investment Income (4) (6) (1,200) (1,090) 1,301 4,082 (150) 38
Accumulated (Distributions in
Excess of) Net Realized Gain
(Loss) 14,747 34,999 (126,890) (28,054) 978 12,058 21 (89)
Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Translations** 6,123 16,746 (23,483) (37,352) 61,355 79,385 60 --
---------- -------- -------- -------- -------- ---------- ------ ----------
NET ASSETS $ 219,404 $617,337 $102,077 $140,062 $773,309 $ 596,080 $7,726 $ 56,302
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
CLASS A SHARES:
Net Assets $ 64,035 $220,100 $ 47,128 $ 74,959 $ 80,508 $ 261,633 $4,413 $ 56,302
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 3,200 10,315 7,218 9,388 7,239 15,695 440 56,414
Net Asset Value and Redemption
Price Per Share $ 20.01 $ 21.34 $ 6.53 $ 7.98 $ 11.12 $ 16.67 $10.02 $ 1.00
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
Maximum Sales Charge 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 4.75% --
Maximum Offering Price Per Share
(Net Asset Value Per Share X 100
/ (100 - maximum sales charge)) $ 21.23 $ 22.64 $ 6.93 $ 8.38 $ 11.80 $ 17.69 $10.52 --
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
CLASS B SHARES:
Net Assets $ 130,497 $269,836 $ 26,126 $ 36,423 $623,229 $ 225,797 $1,425 --
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 6,634 12,730 4,143 4,679 56,269 13,987 143 --
Net Asset Value and Offering Price
Per Share*** $ 19.67 $ 21.20 $ 6.31 $ 7.78 $ 11.08 $ 16.14 $ 9.97 --
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
CLASS C SHARES:
Net Assets $ 24,872 $127,401 $ 28,823 $ 28,680 $ 69,572 $ 108,650 $1,888 --
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 1,265 6,008 4,583 3,681 6,282 6,666 190 --
Net Asset Value and Offering Price
Per Share*** $ 19.66 $ 21.20 $ 6.29 $ 7.79 $ 11.07 $ 16.30 $ 9.96 --
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
Investments at Cost, Including
Foreign Currency $ 212,876 $598,231 $127,293 $180,615 $711,914 $ 532,332 $7,557 $ 56,317
---------- -------- -------- -------- -------- ---------- ------ ----------
---------- -------- -------- -------- -------- ---------- ------ ----------
</TABLE>
- ---------------
* Includes repurchase agreements aggregating $10,586,000, $67,722,000,
$5,971,000, $4,983,000, $46,443,000, $125,328,000, $390,000,
$9,398,000, $1,424,000, $18,731,000 $2,772,000, $19,615,000, $537,000,
$42,983,000 and $11,543,000 for Aggressive Equity Fund, American Value
Fund, Asian Growth Fund, Emerging Markets Fund, Global Equity Fund,
Global Equity Allocation Fund, Global Fixed Income Fund, Government
Obligations Money Market Fund, High Yield & Total Return Fund,
International Magnum Fund, Latin American Fund, Money Market Fund,
U.S. Real Estate Fund, Value Fund, and Worldwide High Income Fund,
respectively.
** Net of accrual for country tax of U.S. $8,000 for Asian Growth Fund
and $26,000 for Emerging Markets Fund.
*** Redemption price may be subject to a contingent deferred sales charge.
-----------------------
101
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
HIGH
YIELD WORLDWIDE
& TOTAL INTERNATIONAL LATIN MONEY U.S. REAL HIGH
RETURN MAGNUM AMERICAN MARKET ESTATE VALUE INCOME
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 27 $ 9 $ 7 $ 119 $ 2 $ 30 $ 24
Paid in Capital in Excess of Par 33,531 121,221 106,175 119,334 34,797 309,683 310,969
Undistributed (Distributions in
Excess of) Net Investment
Income 36 1,524 (95) (6) 4 (45) 781
Accumulated (Distributions in
Excess of) Net Realized
Gain (Loss) 574 874 (9,525) (71) 1,305 4,863 1,096
Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Translations** 210 10,250 (13,340) -- 149 1,221 (14,693)
------- ------------- -------- -------- --------- --------- ---------
NET ASSETS $34,378 $ 133,878 $ 83,222 $119,376 $ 36,257 $ 315,752 $ 298,177
------- ------------- -------- -------- --------- --------- ---------
------- ------------- -------- -------- --------- --------- ---------
CLASS A SHARES:
Net Assets $ 7,814 $ 66,817 $ 44,439 $119,376 $ 16,873 $ 137,447 $ 91,579
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 617 4,501 3,890 119,514 1,081 13,057 7,347
Net Asset Value and Redemption
Price Per Share $ 12.66 $ 14.85 $ 11.42 $ 1.00 $ 15.61 $ 10.53 $ 12.46
------- ------------- -------- -------- --------- --------- ---------
------- ------------- -------- -------- --------- --------- ---------
Maximum Sales Charge 4.75% 5.75% 5.75% -- 5.75% 5.75% 4.75%
Maximum Offering Price Per Share
(Net Asset Value Per Share X 100
/ (100 - maximum
sales charge)) $ 13.43 $ 15.76 $ 12.12 -- $ 16.39 $ 11.17 $ 13.08
------- ------------- -------- -------- --------- --------- ---------
------- ------------- -------- -------- --------- --------- ---------
CLASS B SHARES:
Net Assets $18,419 $ 51,541 $ 24,206 -- $ 15,197 $ 142,741 $ 146,401
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 1,458 3,500 2,195 -- 978 13,576 11,810
Net Asset Value and Offering Price
Per Share*** $ 12.63 $ 14.72 $ 11.03 -- $ 15.54 $ 10.51 $ 12.40
------- ------------- -------- -------- --------- --------- ---------
------- ------------- -------- -------- --------- --------- ---------
CLASS C SHARES:
Net Assets $ 8,145 $ 15,520 $ 14,577 -- $ 4,187 $ 35,564 $ 60,197
Shares Issued and Outstanding
($.001 par value)
(Authorized 2,625,000,000) 645 1,050 1,321 -- 269 3,386 4,854
Net Asset Value and Offering Price
Per Share*** $ 12.63 $ 14.78 $ 11.04 -- $ 15.55 $ 10.50 $ 12.40
------- ------------- -------- -------- --------- --------- ---------
------- ------------- -------- -------- --------- --------- ---------
Investments at Cost, Including
Foreign Currency $33,645 $ 124,261 $ 96,394 $118,940 $ 35,041 $ 313,426 $ 295,500
------- ------------- -------- -------- --------- --------- ---------
------- ------------- -------- -------- --------- --------- ---------
</TABLE>
- ------------------
102
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
GOVERNMENT
GLOBAL GLOBAL OBLIGATIONS
AGGRESSIVE AMERICAN ASIAN EMERGING GLOBAL* EQUITY FIXED MONEY
EQUITY VALUE GROWTH MARKETS EQUITY ALLOCATION INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1,061 $ 3,096 $ 2,836 $ 3,788 $ 9,475 $ 5,332 $ -- $ --
Interest 350 1,345 519 1,019 2,619 2,018 502 3,830
Security Lending -- -- -- -- -- 152 -- --
Less Foreign Taxes Withheld -- -- (266) (183) (885) (311) (4) --
---------- -------- --------- -------- ------- ---------- ------ ----------
Total Income 1,411 4,441 3,089 4,624 11,209 7,191 498 3,830
---------- -------- --------- -------- ------- ---------- ------ ----------
EXPENSES:
Investment Advisory Fees 1,127 2,691 1,823 2,462 4,344 2,399 69 289
Less: Fees Waived (279) (267) (266) (553) -- (292) (69) (183)
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Investment Advisory Fees 848 2,424 1,557 1,909 4,344 2,107 -- 106
Administrative Fees 316 799 463 522 1,089 657 27 70
Custodian Fees 55 68 650 912 150 271 14 17
Filing and Registration Fees 39 141 -- 8 -- -- -- --
Directors' Fees and Expenses 7 9 12 26 12 13 6 7
Professional Fees 32 33 39 66 52 50 29 4
Shareholder Reports 79 121 109 100 141 103 39 37
Transfer Agent Fees 102 189 270 141 274 148 22 --
Dividend Expense for Securities
Sold Short 1
Distribution Fees
Class A 100 289 224 263 108 219 14 343
Class B 706 1,232 379 452 3,543 673 15 --
Class C 141 766 558 465 368 843 21 --
Amortization of Organizational
Costs 11 4 5 3 44 6 6 --
Blue Sky Fees 67 123 81 84 232 67 37 64
Country Tax Expense -- -- 108 231 -- -- -- --
Security Lending Expense -- -- -- -- -- 28 -- --
Other 4 34 13 59 8 13 4 2
Expenses Reimbursed by Adviser -- -- -- -- -- -- (72) --
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Expenses 2,508 6,232 4,468 5,241 10,365 5,198 162 650
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Investment Income (Loss) (1,097) (1,791) (1,379) (617) 844 1,993 336 3,180
---------- -------- --------- -------- ------- ---------- ------ ----------
NET REALIZED GAIN (LOSS) ON:
Investments 23,535 45,496 (116,787) (22,635) 978 23,954 (104) 2
Foreign Currency Transactions -- -- (408) (225) 711 3,262 45 --
Futures and Swaps -- -- -- (376) -- 6,360 -- --
Securities Sold Short (506) -- -- -- -- -- --
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Realized Gain (Loss) 23,029 45,496 (117,195) (23,236) 1,689 33,576 (59) 2
---------- -------- --------- -------- ------- ---------- ------ ----------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 2,407 4,044 (58,679) (57,931) 61,447 47,367 145 --
Foreign Currency Translations -- -- 67 1,186 (92) (793) 33 --
Futures and Swaps -- -- -- (932) -- 724 -- --
Securities Sold Short 237 -- -- -- -- -- -- --
---------- -------- --------- -------- ------- ---------- ------ ----------
Change in Unrealized
Appreciation/Depreciation 2,644 4,044 (58,612) (57,677) 61,355 47,298 178 --
---------- -------- --------- -------- ------- ---------- ------ ----------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation 25,673 49,540 (175,807) (80,913) 63,044 80,874 119 2
---------- -------- --------- -------- ------- ---------- ------ ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 24,576 $ 47,749 $(177,186) $(81,530) $63,888 $ 82,867 $ 455 $ 3,182
---------- -------- --------- -------- ------- ---------- ------ ----------
---------- -------- --------- -------- ------- ---------- ------ ----------
</TABLE>
- ---------------
* Commencement of operations was October 29, 1997.
-----------------------
103
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998 (CONT.)
<TABLE>
<CAPTION>
HIGH
YIELD
& WORLDWIDE
TOTAL INTERNATIONAL LATIN MONEY U.S. REAL HIGH
RETURN MAGNUM AMERICAN MARKET ESTATE VALUE* INCOME
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 93 $ 2,088 $ 2,387 $ -- $ 1,461 $3,434 $ 214
Interest 2,046 661 203 9,435 115 1,511 24,212
Security Lending -- -- -- -- -- -- --
Less Foreign Taxes Withheld -- (261) (52) -- -- -- --
------ ------ -------- ------ --------- ------ ---------
Total Income 2,139 2,488 2,538 9,435 1,576 4,945 24,426
------ ------ -------- ------ --------- ------ ---------
EXPENSES:
Investment Advisory Fees 185 709 1,416 680 343 1,589 1,864
Less: Fees Waived (158) (148) (169) (195) (185) (278) --
------ ------ -------- ------ --------- ------ ---------
Net Investment Advisory Fees 27 561 1,247 485 158 1,311 1,864
Administrative Fees 64 237 335 162 89 500 626
Custodian Fees 13 152 208 31 44 116 59
Filing and Registration Fees 3 22 3 -- 4 89 42
Directors' Fees and Expenses 6 7 9 7 6 8 9
Professional Fees 27 42 49 -- 23 31 54
Shareholder Reports 41 56 74 51 35 80 112
Transfer Agent Fees 20 81 101 31 104 135
Distribution Fees
Class A 18 104 164 825 45 236 216
Class B 123 356 264 -- 120 845 1,101
Class C 50 112 214 -- 37 194 517
Amortization of Organizational
Costs 5 7 4 -- 10 63 4
Blue Sky Fees 36 69 75 56 46 104 72
Country Tax Expense -- -- 162 -- -- -- --
Other 5 3 9 4 3 4 24
------ ------ -------- ------ --------- ------ ---------
Net Expenses 438 1,809 2,918 1,621 651 3,685 4,835
------ ------ -------- ------ --------- ------ ---------
Net Investment Income (Loss) 1,701 679 (380) 7,814 925 1,260 19,591
------ ------ -------- ------ --------- ------ ---------
NET REALIZED GAIN (LOSS) ON:
Investments 1,119 927 4,800 28 2,646 5,893 11,805
Foreign Currency Transactions -- 948 (224) -- -- -- 213
------ ------ -------- ------ --------- ------ ---------
Net Realized Gain 1,119 1,875 4,576 28 2,646 5,893 12,018
------ ------ -------- ------ --------- ------ ---------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments (585) 5,933 (27,218) -- (1,683) 1,221 (28,594)
Foreign Currency Translations -- 133 12 -- -- -- 159
------ ------ -------- ------ --------- ------ ---------
Change in Unrealized
Appreciation/Depreciation (585) 6,066 (27,206) -- (1,683) 1,221 (28,435)
------ ------ -------- ------ --------- ------ ---------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation 534 7,941 (22,630) 28 963 7,114 (16,417)
------ ------ -------- ------ --------- ------ ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS $2,235 $ 8,620 $(23,010) $7,842 $ 1,888 $8,374 $ 3,174
------ ------ -------- ------ --------- ------ ---------
------ ------ -------- ------ --------- ------ ---------
</TABLE>
- ---------------
* Commencement of operations was July 7, 1997.
- --------------
104
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (1,097) $ (135)
Net Realized Gain 23,029 3,674
Change in Unrealized Appreciation/Depreciation 2,644 3,205
---------- -------
Net Increase in Net Assets Resulting from
Operations 24,576 6,744
---------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (16)
Class B -- (5)
Class C -- (5)
---------- -------
-- (26)
---------- -------
Net Realized Gain:
Class A (3,187) (711)
Class B (5,696) (452)
Class C (1,157) (439)
---------- -------
(10,040) (1,602)
---------- -------
Net Decrease in Net Assets Resulting from
Distributions (10,040) (1,628)
---------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 171,376 57,588
Distributions Reinvested 9,563 1,037
Redeemed (42,384) (7,818)
---------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 138,555 50,807
---------- -------
Total Increase in Net Assets 153,091 55,923
NET ASSETS--Beginning of Year 66,313 10,390
---------- -------
NET ASSETS--End of Year (Including undistributed
net investment loss of $(4) and $(0),
respectively) $ 219,404 $ 66,313
---------- -------
---------- -------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 3,038 1,309
Distributions Reinvested 177 35
Redeemed (1,340) (392)
---------- -------
Net Increase in Class A Shares Outstanding 1,875 952
---------- -------
---------- -------
Dollars:
Subscribed $ 59,406 $ 20,966
Distributions Reinvested 3,064 522
Redeemed (26,003) (6,373)
---------- -------
Net Increase $ 36,467 $ 15,115
---------- -------
---------- -------
Ending Paid in Capital $ 56,463 $ 19,996
---------- -------
---------- -------
Class B:
---------------------
Shares:
Subscribed 4,818 1,905
Distributions Reinvested 314 18
Redeemed (539) (51)
---------- -------
Net Increase in Class B Shares Outstanding 4,593 1,872
---------- -------
---------- -------
Dollars:
Subscribed $ 92,956 $ 30,344
Distributions Reinvested 5,363 262
Redeemed (10,091) (818)
---------- -------
Net Increase $ 88,228 $ 29,788
---------- -------
---------- -------
Ending Paid in Capital $ 120,092 $ 31,863
---------- -------
---------- -------
Class C:
---------------------
Shares:
Subscribed 982 404
Distributions Reinvested 67 17
Redeemed (343) (42)
---------- -------
Net Increase in Class C Shares Outstanding 706 379
---------- -------
---------- -------
Dollars:
Subscribed $ 19,014 $ 6,278
Distributions Reinvested 1,136 252
Redeemed (6,290) (626)
---------- -------
Net Increase $ 13,860 $ 5,904
---------- -------
---------- -------
Ending Paid in Capital $ 21,983 $ 8,124
---------- -------
---------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
105
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (1,791) $ 424
Net Realized Gain 45,496 6,719
Change in Unrealized Appreciation/Depreciation 4,044 7,544
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 47,749 14,687
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (309)
Class B -- (25)
Class C -- (133)
In Excess of Net Investment Income:
Class A (122) (1)
Class B (29) --
Class C (25) --
---------- ---------------
(176) (468)
---------- ---------------
Net Realized Gain:
Class A (5,303) (1,555)
Class B (5,203) (209)
Class C (3,629) (1,482)
---------- ---------------
(14,135) (3,246)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (14,311) (3,714)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 558,778 38,027
Distributions Reinvested 12,507 3,292
Redeemed (69,473) (13,557)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 501,812 27,762
---------- ---------------
Total Increase in Net Assets 535,250 38,735
NET ASSETS--Beginning of Year 82,087 43,352
---------- ---------------
NET ASSETS--End of Year (Including distributions
in excess of net investment income of $(6) and
$(1), respectively) $ 617,337 $ 82,087
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 9,937 1,025
Distributions Reinvested 269 119
Redeemed (1,843) (538)
---------- ---------------
Net Increase in Class A Shares Outstanding 8,363 606
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 205,042 $ 16,463
Distributions Reinvested 5,049 1,785
Redeemed (37,455) (8,501)
---------- ---------------
Net Increase $ 172,636 $ 9,747
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 197,990 $ 25,289
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 12,495 714
Distributions Reinvested 239 15
Redeemed (875) (27)
---------- ---------------
Net Increase in Class B Shares Outstanding 11,859 702
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 257,479 $ 11,773
Distributions Reinvested 4,461 228
Redeemed (18,025) (420)
---------- ---------------
Net Increase $ 243,915 $ 11,581
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 257,889 $ 13,891
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 4,675 623
Distributions Reinvested 160 85
Redeemed (671) (312)
---------- ---------------
Net Increase in Class C Shares Outstanding 4,164 396
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 96,257 $ 9,791
Distributions Reinvested 2,997 1,279
Redeemed (13,993) (4,636)
---------- ---------------
Net Increase $ 85,261 $ 6,434
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 109,719 $ 24,423
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
106
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (1,379) $ (2,748)
Net Realized (Loss) (117,195) (4,804)
Change in Unrealized Appreciation/Depreciation (58,612) (2,619)
---------- ---------------
Net Decrease in Net Assets Resulting from
Operations (177,186) (10,171)
---------- ---------------
DISTRIBUTIONS:
Net Realized Gain:
Class A -- (33)
Class B -- (10)
Class C -- (24)
In Excess of Net Realized Gain:
Class A (135) (4,110)
Class B (60) (1,274)
Class C (84) (3,072)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (279) (8,523)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 114,898 114,562
Distributions Reinvested 258 8,035
Redeemed (188,300) (220,149)
---------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (73,144) (97,552)
---------- ---------------
Total Decrease in Net Assets (250,609) (116,246)
NET ASSETS--Beginning of Year 352,686 468,932
---------- ---------------
NET ASSETS--End of Year (Including net investment
loss of $(1,200) and $(1,153), respectively) $ 102,077 $352,686
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 9,205 4,724
Distributions Reinvested 15 243
Redeemed (12,556) (8,877)
---------- ---------------
Net Decrease in Class A Shares Outstanding (3,336) (3,910)
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 80,960 $ 77,015
Distributions Reinvested 125 3,930
Redeemed (123,834) (144,501)
---------- ---------------
Net Decrease $ (42,749) $(63,556)
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 76,638 $155,944
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 2,181 1,466
Distributions Reinvested 7 77
Redeemed (1,929) (803)
---------- ---------------
Net Increase in Class B Shares Outstanding 259 740
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 19,723 $ 23,406
Distributions Reinvested 55 1,210
Redeemed (19,925) (12,628)
---------- ---------------
Net Increase (Decrease) $ (147) $ 11,988
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 63,990 $ 64,231
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 1,702 883
Distributions Reinvested 10 184
Redeemed (4,222) (3,989)
---------- ---------------
Net Decrease in Class C Shares Outstanding (2,510) (2,922)
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 14,215 $ 14,140
Distributions Reinvested 78 2,895
Redeemed (44,541) (63,019)
---------- ---------------
Net Decrease $ (30,248) $(45,984)
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 113,022 $106,991
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
107
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (617) $ (538)
Net Realized Gain (Loss) (23,236) 14,993
Change in Unrealized Appreciation/Depreciation (57,677) 7,475
---------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (81,530) 21,930
---------- ---------------
DISTRIBUTIONS:
In Excess of Net Investment Income:
Class A -- (291)
Class B -- (52)
Class C -- (44)
---------- ---------------
-- (387)
---------- ---------------
Net Realized Gain:
Class A (6,225) (871)
Class B (3,112) (182)
Class C (2,878) (503)
In Excess of Net Realized Gain:
Class A (2,361) --
Class B (1,180) --
Class C (1,091) --
---------- ---------------
(16,847) (1,556)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (16,847) (1,943)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 160,772 133,953
Distributions Reinvested 15,915 1,855
Redeemed (151,194) (111,716)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 25,493 24,092
---------- ---------------
Total Increase (Decrease) in Net Assets (72,884) 44,079
NET ASSETS--Beginning of Year 212,946 168,867
---------- ---------------
NET ASSETS--End of Year (Including net investment
loss and distributions in excess of net
investment income of $(1,090) and $(659),
respectively) $ 140,062 $212,946
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 10,304 7,637
Distributions Reinvested 891 104
Redeemed (10,645) (8,424)
---------- ---------------
Net Increase (Decrease) in Class A Shares
Outstanding 550 (683)
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 114,410 $ 89,680
Distributions Reinvested 8,101 1,103
Redeemed (115,555) (96,827)
---------- ---------------
Net Increase (Decrease) $ 6,956 $ (6,044)
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 107,744 $100,788
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 2,827 2,028
Distributions Reinvested 457 20
Redeemed (1,321) (205)
---------- ---------------
Net Increase in Class B Shares Outstanding 1,963 1,843
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 33,891 $ 23,982
Distributions Reinvested 4,064 223
Redeemed (13,053) (2,355)
---------- ---------------
Net Increase $ 24,902 $ 21,850
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 56,453 $ 31,551
---------- ---------------
---------- ---------------
Class C
---------------------
Shares:
Subscribed 1,061 1,753
Distributions Reinvested 421 51
Redeemed (2,173) (1,086)
---------- ---------------
Net Increase (Decrease) in Class C Shares
Outstanding (691) 718
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 12,471 $ 20,292
Distributions Reinvested 3,750 528
Redeemed (22,586) (12,534)
---------- ---------------
Net Increase (Decrease) $ (6,365) $ 8,286
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 42,361 $ 48,726
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
108
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
OCTOBER 29, 1997* TO
JUNE 30, 1998
(000)
<S> <C>
- ---------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 844
Net Realized Gain 1,689
Change in Unrealized Appreciation/Depreciation 61,355
----------
Net Increase in Net Assets Resulting from
Operations 63,888
----------
DISTRIBUTIONS:
Net Investment Income:
Class A (88)
Class B (188)
Class C (18)
----------
Net Decrease in Net Assets Resulting from
Distributions (294)
----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 739,265
Distributions Reinvested 276
Redeemed (29,826)
----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 709,715
----------
Total Increase in Net Assets 773,309
NET ASSETS--Beginning of Period --
----------
NET ASSETS--End of Period (Including undistributed
net investment income of $1,301) $ 773,309
----------
----------
- ---------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 7,876
Distributions Reinvested 8
Redeemed (645)
----------
Net Increase in Class A Shares Outstanding 7,239
----------
----------
Dollars:
Subscribed $ 81,031
Distributions Reinvested 78
Redeemed (7,009)
----------
Net Increase $ 74,100
----------
----------
Ending Paid in Capital $ 74,096
----------
----------
Class B:
---------------------
Shares:
Subscribed 57,900
Distributions Reinvested 19
Redeemed (1,650)
----------
Net Increase in Class B Shares Outstanding 56,269
----------
----------
Dollars:
Subscribed $ 588,891
Distributions Reinvested 180
Redeemed (17,780)
----------
Net Increase $ 571,291
----------
----------
Ending Paid in Capital $ 571,259
----------
----------
Class C:
---------------------
Shares:
Subscribed 6,752
Distributions Reinvested 2
Redeemed (472)
----------
Net Increase in Class C Shares Outstanding 6,282
----------
----------
Dollars:
Subscribed $ 69,343
Distributions Reinvested 18
Redeemed (5,037)
----------
Net Increase $ 64,324
----------
----------
Ending Paid in Capital $ 64,320
----------
----------
- ---------------------------------------------------------------------------
* Commencement of operations
</TABLE>
-----------------------
109
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,993 $ 245
Net Realized Gain 33,576 13,170
Change in Unrealized Appreciation/Depreciation 47,298 17,251
---------- ----------
Net Increase in Net Assets Resulting from
Operations 82,867 30,666
---------- ----------
DISTRIBUTIONS:
Net Investment Income:
Class A (1,628) (2,358)
Class B (1,028) (759)
Class C (1,187) (2,093)
---------- ----------
(3,843) (5,210)
---------- ----------
Net Realized Gain:
Class A (8,369) (2,101)
Class B (6,610) (751)
Class C (9,026) (2,262)
---------- ----------
(24,005) (5,114)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions (27,848) (10,324)
---------- ----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 399,475 54,525
Distributions Reinvested 26,341 9,826
Redeemed (74,620) (36,345)
---------- ----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 351,196 28,006
---------- ----------
Total Increase in Net Assets 406,215 48,348
NET ASSETS--Beginning of Year 189,865 141,517
---------- ----------
NET ASSETS--End of Year (Including undistributed
net investment income of $82 and $2,666,
respectively) $ 596,080 $ 189,865
---------- ----------
---------- ----------
- ------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 13,220 1,091
Distributions Reinvested 658 293
Redeemed (2,571) (1,314)
---------- ----------
Net Increase in Class A Shares Outstanding 11,307 70
---------- ----------
---------- ----------
Dollars:
Subscribed $ 193,752 $ 16,569
Distributions Reinvested 9,235 4,157
Redeemed (41,983) (19,605)
---------- ----------
Net Increase $ 161,004 $ 1,121
---------- ----------
---------- ----------
Ending Paid in Capital $ 215,278 $ 53,342
---------- ----------
---------- ----------
Class B:
---------------------
Shares:
Subscribed 11,944 1,444
Distributions Reinvested 533 106
Redeemed (902) (160)
---------- ----------
Net Increase in Class B Shares Outstanding 11,575 1,390
---------- ----------
---------- ----------
Dollars:
Subscribed $ 170,660 $ 21,138
Distributions Reinvested 7,277 1,475
Redeemed (14,280) (2,336)
---------- ----------
Net Increase $ 163,657 $ 20,277
---------- ----------
---------- ----------
Ending Paid in Capital $ 198,908 $ 34,446
---------- ----------
---------- ----------
Class C:
---------------------
Shares:
Subscribed 2,310 1,160
Distributions Reinvested 713 300
Redeemed (1,171) (995)
---------- ----------
Net Increase in Class C Shares Outstanding 1,852 465
---------- ----------
---------- ----------
Dollars:
Subscribed $ 35,063 $ 16,818
Distributions Reinvested 9,829 4,194
Redeemed (18,357) (14,404)
---------- ----------
Net Increase $ 26,535 $ 6,608
---------- ----------
---------- ----------
Ending Paid in Capital $ 86,368 $ 59,446
---------- ----------
---------- ----------
- ------------------------------------------------------------------------------------------
</TABLE>
- -----------
110
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 336 $ 436
Net Realized Gain (Loss) (59) 111
Change in Unrealized Appreciation/Depreciation 178 (84)
------- -------
Net Increase in Net Assets Resulting from
Operations 455 463
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (219) (218)
Class B (49) (46)
Class C (68) (74)
In Excess of Net Investment Income:
Class A (4) (41)
Class B (1) (9)
Class C (1) (14)
------- -------
(342) (402)
------- -------
Net Realized Gain:
Class A (30) --
Class B (8) --
Class C (11) --
------- -------
(49) --
------- -------
Net Decrease in Net Assets Resulting from
Distributions (391) (402)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 1,701 4,760
Distributions Reinvested 329 335
Redeemed (4,936) (6,304)
------- -------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (2,906) (1,209)
------- -------
Total Decrease in Net Assets (2,842) (1,148)
NET ASSETS--Beginning of Year 10,568 11,716
------- -------
NET ASSETS--End of Year (Including distributions
in excess of net investment income of $(150) and
$(63), respectively) $ 7,726 $ 10,568
------- -------
------- -------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------------------
Shares:
Subscribed 72 256
Distributions Reinvested 22 22
Redeemed (298) (382)
------- -------
Net Decrease in Class A Shares Outstanding (204) (104)
------- -------
------- -------
Dollars:
Subscribed $ 714 $ 2,529
Distributions Reinvested 226 225
Redeemed (2,981) (3,839)
------- -------
Net Decrease $ (2,041) $ (1,085)
------- -------
------- -------
Ending Paid in Capital $ 4,452 $ 6,492
------- -------
------- -------
Class B:
--------------------
Shares:
Subscribed 58 100
Distributions Reinvested 4 4
Redeemed (92) (76)
------- -------
Net Increase (Decrease) in Class B Shares
Outstanding (30) 28
------- -------
------- -------
Dollars:
Subscribed $ 572 $ 999
Distributions Reinvested 42 41
Redeemed (909) (758)
------- -------
Net Increase (Decrease) $ (295) $ 282
------- -------
------- -------
Ending Paid in Capital $ 1,434 $ 1,730
------- -------
------- -------
Class C:
--------------------
Shares:
Subscribed 42 123
Distributions Reinvested 6 7
Redeemed (105) (170)
------- -------
Net Decrease in Class C Shares Outstanding (57) (40)
------- -------
------- -------
Dollars:
Subscribed $ 415 $ 1,232
Distributions Reinvested 61 69
Redeemed (1,046) (1,707)
------- -------
Net Decrease $ (570) $ (406)
------- -------
------- -------
Ending Paid in Capital $ 1,909 $ 2,479
------- -------
------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
111
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 3,180 $ 5,375
Net Realized Gain 2 8
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 3,182 5,383
---------- ---------------
DISTRIBUTIONS:
Net Investment Income: (3,204) (5,375)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 290,344 359,068
Distributions Reinvested 3,076 4,349
Redeemed (331,864) (414,635)
---------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (38,444) (51,218)
---------- ---------------
Total Decrease in Net Assets (38,466) (51,210)
NET ASSETS--Beginning of Year 94,768 145,978
---------- ---------------
NET ASSETS--End of Year $ 56,302 $ 94,768
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Shares
Subscribed 290,344 359,068
Distributions Reinvested 3,076 4,349
Redeemed (331,864) (414,635)
---------- ---------------
Net Decrease in Shares Outstanding (38,444) (51,218)
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 56,353 $ 94,859
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
112
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD & TOTAL RETURN FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,701 $ 1,246
Net Realized Gain 1,119 312
Change in Unrealized Appreciation/Depreciation (585) 881
-------- ---------------
Net Increase in Net Assets Resulting from
Operations 2,235 2,439
-------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (525) (434)
Class B (854) (454)
Class C (343) (338)
-------- ---------------
(1,722) (1,226)
-------- ---------------
Net Realized Gain:
Class A (236) (20)
Class B (415) (24)
Class C (120) (20)
-------- ---------------
(771) (64)
-------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (2,493) (1,290)
-------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 32,419 12,562
Distributions Reinvested 1,273 237
Redeemed (21,623) (2,025)
-------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,069 10,774
-------- ---------------
Total Increase in Net Assets 11,811 11,923
NET ASSETS--Beginning of Year 22,567 10,644
-------- ---------------
NET ASSETS--End of Year (Including undistributed
net investment income of $36 and $38,
respectively.) $ 34,378 $ 22,567
-------- ---------------
-------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 786 461
Distributions Reinvested 33 10
Redeemed (900) (101)
-------- ---------------
Net Increase (Decrease) in Class A Shares
Outstanding (81) 370
-------- ---------------
-------- ---------------
Dollars:
Subscribed $ 10,149 $ 5,790
Distributions Reinvested 420 131
Redeemed (11,731) (1,282)
-------- ---------------
Net Increase (Decrease) $ (1,162) $ 4,639
-------- ---------------
-------- ---------------
Ending Paid in Capital $ 7,412 $ 8,574
-------- ---------------
-------- ---------------
Class B:
---------------------
Shares:
Subscribed 1,167 397
Distributions Reinvested 48 6
Redeemed (427) (20)
-------- ---------------
Net Increase in Class B Shares Outstanding 788 383
-------- ---------------
-------- ---------------
Dollars:
Subscribed $ 15,056 $ 4,971
Distributions Reinvested 615 72
Redeemed (5,588) (249)
-------- ---------------
Net Increase $ 10,083 $ 4,794
-------- ---------------
-------- ---------------
Ending Paid in Capital $ 18,320 $ 8,237
-------- ---------------
-------- ---------------
Class C:
---------------------
Shares:
Subscribed 562 144
Distributions Reinvested 19 3
Redeemed (323) (39)
-------- ---------------
Net Increase in Class C Shares Outstanding 258 108
-------- ---------------
-------- ---------------
Dollars:
Subscribed $ 7,214 $ 1,800
Distributions Reinvested 238 35
Redeemed (4,304) (494)
-------- ---------------
Net Increase $ 3,148 $ 1,341
-------- ---------------
-------- ---------------
Ending Paid in Capital $ 7,826 $ 4,678
-------- ---------------
-------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
113
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 1, 1996* TO
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 679 $ 170
Net Realized Gain 1,875 770
Change in Unrealized Appreciation /Depreciation 6,066 4,184
---------- -------
Net Increase in Net Assets Resulting from
Operations 8,620 5,124
---------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (488) (52)
Class B (330) (45)
Class C (53) (43)
---------- -------
(871) (140)
---------- -------
Net Realized Gain:
Class A (33) (4)
Class B (31) (4)
Class C (9) (4)
---------- -------
(73) (12)
---------- -------
Net Decrease in Net Assets Resulting from
Distributions (944) (152)
---------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 106,801 47,034
Distributions Reinvested 850 50
Redeemed (30,781) (2,724)
---------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 76,870 44,360
---------- -------
Total Increase in Net Assets 84,546 49,332
NET ASSETS--Beginning of Year 49,332 --
---------- -------
NET ASSETS--End of Year (Including undistributed
net investment income of $1,524 and $767,
respectively) $ 133,878 $ 49,332
---------- -------
---------- -------
- ----------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 4,160 1,722
Distributions Reinvested 38 1
Redeemed (1,276) (144)
---------- -------
Net Increase in Class A Shares Outstanding 2,922 1,579
---------- -------
---------- -------
Dollars:
Subscribed $ 58,246 $ 21,512
Distributions Reinvested 473 14
Redeemed (17,581) (1,786)
---------- -------
Net Increase $ 41,138 $ 19,740
---------- -------
---------- -------
Ending Paid in Capital $ 60,878 $ 19,740
---------- -------
---------- -------
Class B:
---------------------
Shares:
Subscribed 2,713 1,321
Distributions Reinvested 26 2
Redeemed (556) (6)
---------- -------
Net Increase in Class B Shares Outstanding 2,183 1,317
---------- -------
---------- -------
Dollars:
Subscribed $ 37,386 $ 16,670
Distributions Reinvested 322 18
Redeemed (7,487) (73)
---------- -------
Net Increase $ 30,221 $ 16,615
---------- -------
---------- -------
Ending Paid in Capital $ 46,836 $ 16,615
---------- -------
---------- -------
Class C:
---------------------
Shares:
Subscribed 809 728
Distributions Reinvested 4 1
Redeemed (425) (67)
---------- -------
Net Increase in Class C Shares Outstanding 388 662
---------- -------
---------- -------
Dollars:
Subscribed $ 11,169 $ 8,852
Distributions Reinvested 55 18
Redeemed (5,713) (865)
---------- -------
Net Increase $ 5,511 $ 8,005
---------- -------
---------- -------
Ending Paid in Capital $ 13,516 $ 8,005
---------- -------
---------- -------
- ----------------------------------------------------------------------------------------
* Commencement of operations
</TABLE>
- -----------
114
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (380) $ (131)
Net Realized Gain 4,576 13,981
Change in Unrealized Appreciation/Depreciation (27,206) 10,200
-------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (23,010) 24,050
-------- ---------------
DISTRIBUTIONS:
In Excess of Net Investment Income:
Class A -- (117)
Class B -- (17)
Class C -- (13)
-------- ---------------
-- (147)
-------- ---------------
Net Realized Gain:
Class A (7,513) (2,192)
Class B (3,444) (359)
Class C (2,645) (727)
In Excess of Net Realized Gain:
Class A (5,098) --
Class B (2,337) --
Class C (1,795) --
-------- ---------------
(22,832) (3,278)
-------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (22,832) (3,425)
-------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 115,672 114,111
Distributions Reinvested 20,476 3,304
Redeemed (126,144) (46,502)
-------- ---------------
Net Increase in Net Assets Resulitng from
Capital Share Transactions 10,004 70,913
-------- ---------------
Total Increase (Decrease) in Net Assets (35,838) 91,538
NET ASSETS--Beginning of Year 119,060 27,522
-------- ---------------
NET ASSETS--End of Year (Including net investment
loss (distributions in excess of net investment
income) of $(95) and $(11), respectively) $ 83,222 $119,060
-------- ---------------
-------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 4,455 6,162
Distributions Reinvested 920 187
Redeemed (6,340) (2,975)
-------- ---------------
Net Increase (Decrease) in Class A Shares
Outstanding (965) 3,374
-------- ---------------
-------- ---------------
Dollars:
Subscribed $ 72,239 $ 90,337
Distributions Reinvested 11,506 2,243
Redeemed (98,189) (41,558)
-------- ---------------
Net Increase (Decrease) $ (14,444) $ 51,022
-------- ---------------
-------- ---------------
Ending Paid in Capital $ 54,118 $ 68,562
-------- ---------------
-------- ---------------
Class B:
---------------------
Shares:
Subscribed 1,661 752
Distributions Reinvested 443 30
Redeemed (752) (104)
-------- ---------------
Net Increase in Class B Shares Outstanding 1,352 678
-------- ---------------
-------- ---------------
Dollars:
Subscribed $ 26,168 $ 11,139
Distributions Reinvested 5,380 353
Redeemed (10,163) (1,385)
-------- ---------------
Net Increase $ 21,385 $ 10,107
-------- ---------------
-------- ---------------
Ending Paid in Capital $ 33,297 $ 11,912
-------- ---------------
-------- ---------------
Class C:
---------------------
Shares:
Subscribed 1,071 856
Distributions Reinvested 296 60
Redeemed (1,242) (266)
-------- ---------------
Net Increase in Class C Shares Outstanding 125 650
-------- ---------------
-------- ---------------
Dollars:
Subscribed $ 17,265 $ 12,635
Distributions Reinvested 3,590 708
Redeemed (17,792) (3,559)
-------- ---------------
Net Increase $ 3,063 $ 9,784
-------- ---------------
-------- ---------------
Ending Paid in Capital $ 18,767 $ 15,704
-------- ---------------
-------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
115
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7,814 $ 8,859
Net Realized Gain 28 13
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 7,842 8,872
---------- ---------------
DISTRIBUTIONS:
Net Investment Income (7,882) (8,859)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 921,486 677,641
Distributions Reinvested 7,384 7,110
Redeemed (947,876) (717,315)
---------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (19,006) (32,564)
---------- ---------------
Total Decrease in Net Assets (19,046) (32,551)
NET ASSETS--Beginning of Year 138,422 170,973
---------- ---------------
NET ASSETS--End of Year $ 119,376 $138,422
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Shares:
Subscribed 921,486 677,641
Distributions Reinvested 7,384 7,110
Redeemed (947,876) (717,315)
---------- ---------------
Net Decrease in Shares Outstanding (19,006) (32,564)
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 119,453 $138,521
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
116
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 925 $ 280
Net Realized Gain 2,646 2,077
Change in Unrealized Appreciation/Depreciation (1,683) 1,622
-------- -------
Net Increase in Net Assets Resulting from
Operations 1,888 3,979
-------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (558) (162)
Class B (328) (57)
Class C (94) (31)
In Excess of Net Investment Income:
Class A (52) --
Class B (30) --
Class C (9) --
-------- -------
(1,071) (250)
-------- -------
Net Realized Gain:
Class A (1,796) (100)
Class B (1,083) (71)
Class C (334) (48)
-------- -------
(3,213) (219)
-------- -------
Net Decrease in Net Assets Resulting from
Distributions (4,284) (469)
-------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 28,564 23,984
Distributions Reinvested 3,942 268
Redeemed (18,169) (9,254)
-------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 14,337 14,998
-------- -------
Total Increase in Net Assets 11,941 18,508
NET ASSETS--Beginning of Year 24,316 5,808
-------- -------
NET ASSETS--End of Year (Including undistributed
(distributions in excess of) net investment
income of $4 and $55, respectively.) $ 36,257 $ 24,316
-------- -------
-------- -------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 856 1,003
Distributions Reinvested 140 13
Redeemed (820) (257)
-------- -------
Net Increase in Class A Shares Outstanding 176 759
-------- -------
-------- -------
Dollars:
Subscribed $ 14,430 $ 15,148
Distributions Reinvested 2,255 187
Redeemed (13,538) (3,998)
-------- -------
Net Increase $ 3,147 $ 11,337
-------- -------
-------- -------
Ending Paid in Capital $ 16,184 $ 13,087
-------- -------
-------- -------
Class B:
---------------------
Shares:
Subscribed 665 441
Distributions Reinvested 80 4
Redeemed (202) (185)
-------- -------
Net Increase in Class B Shares Outstanding 543 260
-------- -------
-------- -------
Dollars:
Subscribed $ 11,167 $ 6,607
Distributions Reinvested 1,279 54
Redeemed (3,346) (2,916)
-------- -------
Net Increase $ 9,100 $ 3,745
-------- -------
-------- -------
Ending Paid In Capital $ 14,914 $ 5,860
-------- -------
-------- -------
Class C:
---------------------
Shares:
Subscribed 175 150
Distributions Reinvested 25 2
Redeemed (76) (149)
-------- -------
Net Increase in Class C Shares Outstanding 124 3
-------- -------
-------- -------
Dollars:
Subscribed $ 2,967 $ 2,229
Distributions Reinvested 408 26
Redeemed (1,285) (2,339)
-------- -------
Net Increase (Decrease) $ 2,090 $ (84)
-------- -------
-------- -------
Ending Paid in Capital $ 3,701 $ 1,624
-------- -------
-------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
117
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
VALUE FUND
<TABLE>
<CAPTION>
JULY 7, 1997* TO
JUNE 30, 1998
(000)
<S> <C>
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,260
Net Realized Gain 5,893
Change in Unrealized Appreciation/Depreciation 1,221
----------
Net Increase in Net Assets Resulting from
Operations 8,374
----------
DISTRIBUTIONS:
Net Investment Income:
Class A (930)
Class B (264)
Class C (66)
In Excess of Net Investment Income:
Class A (77)
Class B (22)
Class C (6)
----------
(1,365)
----------
Net Realized Gain:
Class A (502)
Class B (431)
Class C (95)
----------
(1,028)
----------
Net Decrease in Net Assets Resulting from
Distributions (2,393)
----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 354,369
Distributions Reinvested 2,140
Redeemed (49,738)
----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 306,771
----------
Total Increase in Net Assets 312,752
NET ASSETS--Beginning of Period 3,000
----------
NET ASSETS--End of Period (Including distributions
in excess of net investment income of $(45)) $ 315,752
----------
----------
- ----------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 16,264
Distributions Reinvested 136
Redeemed (3,343)
----------
Net Increase in Class A Shares Outstanding 13,057
----------
----------
Dollars:
Subscribed $ 167,353
Distributions Reinvested 1,393
Redeemed (35,499)
----------
Net Increase $ 133,247
----------
----------
Ending Paid in Capital $ 134,222
----------
----------
Class B:
---------------------
Shares:
Subscribed 14,654
Distributions Reinvested 60
Redeemed (1,138)
----------
Net Increase in Class B Shares Outstanding 13,576
----------
----------
Dollars:
Subscribed $ 150,818
Distributions Reinvested 607
Redeemed (12,023)
----------
Net Increase $ 139,402
----------
----------
Ending Paid in Capital $ 140,375
----------
----------
Class C:
---------------------
Shares:
Subscribed 3,584
Distributions Reinvested 14
Redeemed (212)
----------
Net Increase in Class C Shares Outstanding 3,386
----------
----------
Dollars:
Subscribed $ 36,198
Distributions Reinvested 140
Redeemed (2,216)
----------
Net Increase $ 34,122
----------
----------
Ending Paid in Capital $ 35,116
----------
----------
- ----------------------------------------------------------------------
* Commencement of operations
</TABLE>
- -----------
118
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 19,591 $ 13,435
Net Realized Gain 12,018 9,362
Change in Unrealized Appreciation/Depreciation (28,435) 14,412
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 3,174 37,209
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (6,930) (5,678)
Class B (8,313) (4,269)
Class C (3,852) (3,020)
---------- ---------------
(19,095) (12,967)
---------- ---------------
Realized Gain:
Class A (6,907) (2,320)
Class B (8,787) (1,708)
Class C (4,230) (1,293)
---------- ---------------
(19,924) (5,321)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (39,019) (18,288)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 226,529 133,028
Distributions Reinvested 25,615 11,818
Redeemed (114,610) (63,040)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 137,534 81,806
---------- ---------------
Total Increase in Net Assets 101,689 100,727
NET ASSETS--Beginning of Year 196,488 95,761
---------- ---------------
NET ASSETS--End of Year (Including undistributed
net investment income of $781 and $311,
respectively) $ 298,177 $196,488
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 6,811 5,082
Distributions Reinvested 743 423
Redeemed (5,569) (3,469)
---------- ---------------
Net Increase in Class A Shares Outstanding 1,985 2,036
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 93,959 $ 67,886
Distributions Reinvested 9,850 5,651
Redeemed (77,161) (46,537)
---------- ---------------
Net Increase $ 26,648 $ 27,000
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 92,892 $ 66,246
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 7,464 3,787
Distributions Reinvested 770 246
Redeemed (1,939) (622)
---------- ---------------
Net Increase in Class B Shares Outstanding 6,295 3,411
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 101,066 $ 50,939
Distributions Reinvested 10,086 3,287
Redeemed (26,325) (8,415)
---------- ---------------
Net Increase $ 84,827 $ 45,811
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 156,092 $ 71,297
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 2,312 1,057
Distributions Reinvested 432 217
Redeemed (825) (596)
---------- ---------------
Net Increase in Class C Shares Outstanding 1,919 678
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 31,504 $ 14,203
Distributions Reinvested 5,679 2,880
Redeemed (11,124) (8,088)
---------- ---------------
Net Increase $ 26,059 $ 8,995
---------- ---------------
---------- ---------------
Ending Paid in Capital $ 62,009 $ 35,964
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
119
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.98 $ 14.40 $ 12.00
------- ------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.07) 0.01 0.06
Net Realized and Unrealized Gain 5.03 3.95 2.40
------- ------------- ------
Total From Investment Operations 4.96 3.96 2.46
------- ------------- ------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.06)
Net Realized Gain (1.93) (1.35) --
------- ------------- ------
Total Distributions (1.93) (1.38) (0.06)
------- ------------- ------
NET ASSET VALUE, END OF PERIOD $ 20.01 $ 16.98 $ 14.40
------- ------------- ------
------- ------------- ------
TOTAL RETURN (1) 30.93% 28.93% 20.52%
------- ------------- ------
------- ------------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 64,035 $ 22,521 $ 5,382
Ratio of Expenses to Average Net
Assets 1.50% 1.57% 2.03%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.37)% (0.04)% 1.22%**
Portfolio Turnover Rate 308% 241% 204%
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.22 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.71% 2.38% 3.26%**
Net Investment Income (Loss) to
Average Net Assets (0.59)% (0.85)% (0.01)%**
Ratio of Expenses to Average Net
Assets excluding dividend expense
on securities sold short 1.50% 1.50% 1.50%**
- --------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------------------
YEAR ENDED YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.85 $ 14.38 $ 12.00
-------------- ------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.21) (0.02) 0.03
Net Realized and Unrealized Gain 4.96 3.86 2.39
-------------- ------------- ------
Total From Investment Operations 4.75 3.84 2.42
-------------- ------------- ------
DISTRIBUTIONS
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
-------------- ------------- ------
Total Distributions (1.93) (1.37) (0.04)
-------------- ------------- ------
NET ASSET VALUE, END OF PERIOD $ 19.67 $ 16.85 $ 14.38
-------------- ------------- ------
-------------- ------------- ------
TOTAL RETURN (1) 29.94% 28.01% 20.18%
-------------- ------------- ------
-------------- ------------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 130,497 $ 34,382 $ 2,426
Ratio of Expenses to Average Net
Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.11)% (0.83)% 0.43%**
Portfolio Turnover Rate 308% 241% 204%
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.47% 2.88% 3.79%**
Net Investment Income (Loss) to
Average Net Assets (1.34)% (1.43)% (0.69)%**
Ratio of Expenses to Average Net
Assets excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------
YEAR ENDED YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.83 $ 14.37 $ 12.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.21) (0.06) 0.03
Net Realized and Unrealized Gain 4.97 3.89 2.38
------- ------ ------
Total From Investment Operations 4.76 3.83 2.41
------- ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
------- ------ ------
Total Distributions (1.93) (1.37) (0.04)
------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 19.66 $ 16.83 $ 14.37
------- ------ ------
------- ------ ------
TOTAL RETURN (1) 29.90% 28.04% 20.10%
------- ------ ------
------- ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 24,872 $ 9,410 $ 2,582
Ratio of Expenses to Average Net
Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.13)% (0.77)% 0.44%**
Portfolio Turnover Rate 308% 241% 204%
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.07 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.25% 3.23% 3.80%**
Net Investment Income (Loss) to
Average Net Assets (1.35)% (1.67)% (0.69)%**
Ratio of Expenses to Average Net
Assets excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
- ------------------
120
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
OCTOBER 18,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) 0.20 0.27 0.27 0.17
Net Realized and
Unrealized Gain
(Loss) 4.84 4.05 1.94 1.44 (0.30)
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 4.82 4.25 2.21 1.71 (0.13)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.03) (0.20) (0.27) (0.28) (0.17)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ ------------ ------------ ------------ ------------
Total Distributions (1.07) (1.29) (0.47) (0.52) (0.17)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 11.70
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 28.26% 30.68% 17.41% 15.01% (1.12)%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 220,100 $ 34,331 $ 19,674 $ 20,675 $ 10,717
Ratio of Expenses to
Average Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.09)% 1.25% 1.90% 2.29% 2.14%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.58% 1.76% 1.81% 1.96% 2.48%**
Net Investment Income
(Loss) to Average Net
Assets (0.18)% 0.98% 1.59% 1.83% 1.16%**
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
AUGUST 1,
YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.63 $ 13.37
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.17) 0.09 0.15
Net Realized and
Unrealized Gain
(Loss) 4.83 4.05 1.46
------------ ------------ ------
Total from Investment
Operations 4.66 4.14 1.61
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01)
Net Realized Gain (1.04) (1.09) (0.19)
------------ ------------ ------
Total Distributions (1.05) (1.18) (0.35)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 21.20 $ 17.59 $ 14.63
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) 27.30% 29.77% 12.29%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 269,836 $ 15,331 $ 2,485
Ratio of Expenses to
Average Net Assets 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.84)% 0.40% 1.18%**
Portfolio Turnover Rate 207% 73% 41%
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.06 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.33% 2.48% 2.61%**
Net Investment Income
(Loss) to Average Net
Assets (0.93)% 0.14% 0.82%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
OCTOBER 18,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.17) 0.08 0.16 0.17 0.11
Net Realized and
Unrealized Gain
(Loss) 4.83 4.05 1.94 1.44 (0.31)
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 4.66 4.13 2.10 1.61 (0.20)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15) (0.17) (0.11)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ ------------ ------------ ------------ ------------
Total Distributions (1.05) (1.18) (0.35) (0.41) (0.11)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 21.20 $ 17.59 $ 14.64 $ 12.89 $ 11.69
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 27.28% 29.67% 16.50% 14.13% (1.70)%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 127,401 $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to
Average Net Assets 2.25% 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.84)% 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.33% 2.47% 2.58% 2.71% 3.28%**
Net Investment Income
(Loss) to Average Net
Assets (0.92)% 0.22% 0.84% 1.08% 0.36%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
-----------------------
121
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00
------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment (Loss) (0.04) (0.06) (0.04) -- (0.03)
Net Realized and Unrealized Gain
(Loss) (10.03) (0.14) 0.77 1.43 3.53
------- ------------- ------------- ------------- -------------
Total From Investment Operations (10.07) (0.20) 0.73 1.43 3.50
------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.49) --
In Excess of Net Realized Gain (0.02) (0.33) -- (0.02) --
------- ------------- ------------- ------------- -------------
Total Distributions (0.02) (0.33) -- (0.51) --
------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.53 $ 16.62 $ 17.15 $ 16.42 $ 15.50
------- ------------- ------------- ------------- -------------
------- ------------- ------------- ------------- -------------
TOTAL RETURN (1) (60.57)% (1.10)% 4.45% 9.50% 29.17%
------- ------------- ------------- ------------- -------------
------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 47,128 $ 175,440 $ 248,009 $ 178,667 $ 138,212
Ratio of Expenses to Average Net
Assets 1.90% 1.84% 1.88% 1.90% 1.90%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.39)% (0.31)% (0.16)% 0.04% (0.24)%
Portfolio Turnover Rate 130% 74% 38% 34% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During
the Period
Per Share Benefit to Net Investment
Loss $ 0.01 $ -- $ -- $ -- $ 0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.21% -- -- -- 2.17%
Net Investment Loss to Average Net
Assets (0.53)% -- -- -- (0.51)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense 1.90% -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------
YEAR ENDED YEAR ENDED AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.17 $ 16.81 $ 16.51
------- ------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment (Loss) (0.10) (0.16) (0.03)
Net Realized and Unrealized Gain
(Loss) (9.74) (0.15) 0.33
------- ------------- -------
Total From Investment Operations (9.84) (0.31) 0.30
------- ------------- -------
DISTRIBUTIONS
Net Realized Gain -- -- --
In Excess of Net Realized Gain (0.02) (0.33) --
------- ------------- -------
Total Distributions (0.02) (0.33) --
------- ------------- -------
NET ASSET VALUE, END OF PERIOD $ 6.31 $ 16.17 $ 16.81
------- ------------- -------
------- ------------- -------
TOTAL RETURN (1) (60.89)% (1.79)% 1.82%
------- ------------- -------
------- ------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 26,126 $ 62,786 $ 52,853
Ratio of Expenses to Average Net
Assets 2.65% 2.59% 2.61%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.01)% (1.04)% (0.52)%**
Portfolio Turnover Rate 130% 74% 38%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During
the Period
Per Share Benefit to Net Investment
Loss $ 0.02 $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.96 -- --
Net Investment Loss to Average Net
Assets (1.15)% -- --
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.65% -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998# JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00
------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.12) (0.21) (0.13) (0.12) (0.10)
Net Realized and Unrealized Gain
(Loss) (9.71) (0.10) 0.72 1.42 3.50
------- ------------- ------------- ------------- -------------
Total From Investment Operations (9.83) (0.31) 0.59 1.30 3.40
------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.49) --
In Excess of Net Realized Gain (0.02) (0.33) -- (0.02) --
------- ------------- ------------- ------------- -------------
Total Distributions (0.02) (0.33) -- (0.51) --
------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.29 $ 16.14 $ 16.78 $ 16.19 $ 15.40
------- ------------- ------------- ------------- -------------
------- ------------- ------------- ------------- -------------
TOTAL RETURN (1) (60.88)% (1.79)% 3.64% 8.71% 28.33%
------- ------------- ------------- ------------- -------------
------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 28,823 $ 114,460 $ 168,070 $ 139,497 $ 116,889
Ratio of Expenses to Average Net
Assets 2.65% 2.59% 2.63% 2.63% 2.65%
Ratio of Net Investment Loss to
Average Net Assets (1.17)% (1.06)% (0.94)% (0.77)% (0.99)%
Portfolio Turnover Rate 130% 74% 38% 34% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Loss $ 0.01 $ -- $ -- $ -- $ 0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.96% -- -- -- 2.92%
Net Investment Loss to Average Net
Assets (1.31)% -- -- -- (1.26)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.65% -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
- ------------------
122
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED 1994* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.47 $ 12.06 $ 10.61 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) -- 0.01 0.05 0.05
Net Realized and
Unrealized Gain
(Loss) (4.49) 1.57 1.44 (1.44)
------------ ------------ ------------ ------------
Total From Investment
Operations (4.49) 1.58 1.49 (1.39)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.04) --
In Excess of Net
Investment Income -- (0.04) -- --
Net Realized Gain (0.73) (0.13) -- --
In Excess of Net
Realized Gain (0.27) -- -- --
------------ ------------ ------------ ------------
Total Distributions (1.00) (0.17) (0.04) --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 7.98 $ 13.47 $ 12.06 $ 10.61
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (1) (34.31)% 13.54% 14.16% (11.58)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 74,959 $ 119,022 $ 114,850 $ 26,091
Ratio of Expenses to
Average Net Assets 2.27% 2.21% 2.16% 2.33%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.04% (0.06)% 0.93% 0.81%**
Portfolio Turnover Rate 99% 82% 42% 32%
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.03 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.60% 2.41% 2.56% 3.10%**
Net Investment Income
(Loss) to Average Net
Assets (0.24)% (0.27)% 0.53% 0.04%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.15% 2.15% 2.15% 2.15%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
AUGUST 1,
YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.24 $ 11.94 $ 10.91
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.07) (0.03) 0.01
Net Realized and
Unrealized Gain
(Loss) (4.39) 1.50 1.02
------------ ------------ ------------
Total From Investment
Operations (4.46) 1.47 1.03
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net
Investment Income -- (0.04)
Net Realized Gain (0.73) (0.13) --
In Excess of Net
Realized Gain (0.27) -- --
------------ ------------ ------------
Total Distributions (1.00) (0.17) --
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 7.78 $ 13.24 $ 11.94
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) (34.76)% 12.67% 9.45%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 36,423 $ 35,966 $ 10,416
Ratio of Expenses to
Average Net Assets 3.02% 2.96% 2.91%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.67)% (0.64)% 0.30%**
Portfolio Turnover Rate 99% 82% 42%
- --------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.01 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.35% 3.17% 3.31%**
Net Investment Income
(Loss) to Average Net
Assets (0.97)% (0.87)% (0.10)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.90% 2.90% 2.90%**
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------
JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED 1994* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.26 $ 11.93 $ 10.53 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) (0.08) (0.01) --
Net Realized and
Unrealized Gain
(Loss) (4.39) 1.55 1.41 (1.47)
------------ ------------ ------------ ------------
Total From Investment
Operations (4.47) 1.47 1.40 (1.47)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- -- --
In Excess of Net
Investment Income -- (0.01) -- --
Net Realized Gain (0.73) (0.13) -- --
In Excess of Net
Realized Gain (0.27) -- -- --
------------ ------------ ------------ ------------
Total Distributions (1.00) (0.14) -- --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 7.79 $ 13.26 $ 11.93 $ 10.53
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (1) (34.73)% 12.66% 13.30% (12.25)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 28,680 $ 57,958 $ 43,601 $ 22,245
Ratio of Expenses to
Average Net Assets 3.01% 2.96% 2.91% 3.08%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.76)% (0.79)% (0.11)% 0.06%**
Portfolio Turnover Rate 99% 82% 42% 32%
- -----------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.34% 3.17% 3.34% 3.90%**
Net Investment (Loss)
to Average Net Assets (1.03)% (1.00)% (0.54)% (0.76)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.90% 2.90% 2.90% 2.90%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
-----------------------
123
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------- ----------------- -----------------
OCTOBER 29, 1997* OCTOBER 29, 1997* OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1998 TO JUNE 30, 1998 TO JUNE 30, 1998
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------- ----------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.01 0.01
Net Realized and Unrealized Gain 1.08 1.07 1.06
------- ----------------- -------
Total From Investment Operations 1.14 1.08 1.07
------- ----------------- -------
DISTRIBUTIONS
Net Investment Income (0.02) -- --
Net Realized Gain -- -- --
------- ----------------- -------
Total Distributions (0.02) -- --
------- ----------------- -------
NET ASSET VALUE, END OF PERIOD $ 11.12 $ 11.08 $ 11.07
------- ----------------- -------
------- ----------------- -------
TOTAL RETURN (1) 11.38% 10.84% 10.74%
------- ----------------- -------
------- ----------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 80,508 $ 623,229 $ 69,572
Ratio of Expenses to Average Net Assets 1.70%** 2.45%** 2.45%**
Ratio of Net Investment Income to
Average Net Assets 0.88%** 0.12%** 0.13%**
Portfolio Turnover Rate 4% 4% 4%
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
- ------------------
124
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------------- --------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR AUGUST
ENDED ENDED ENDED ENDED ENDED ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 1994 1998# 1997 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 11.09 $ 16.15 $ 14.46 $ 13.01
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.21 0.10 0.19 0.12 0.10 0.09 (0.05) 0.30
Net Realized and
Unrealized Gain 2.07 2.76 2.82 0.67 0.90 2.01 2.73 1.98
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 2.28 2.86 3.01 0.79 1.00 2.10 2.68 2.28
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.35) (0.55) (0.39) -- (0.03) (0.28) (0.50) (0.35)
In Excess of Net
Investment Income -- -- -- (0.05) -- -- -- --
Net Realized Gain (1.83) (0.49) (0.47) (0.13) (0.07) (1.83) (0.49) (0.48)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.18) (1.04) (0.86) (0.18) (0.10) (2.11) (0.99) (0.83)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 16.67 $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 16.14 $ 16.15 $ 14.46
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 16.17% 20.61% 24.62% 6.69% 9.02% 15.33% 19.64% 18.08%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $261,633 $ 72,704 $ 63,706 $ 42,586 $ 33,425 $225,797 $ 38,962 $ 14,786
Ratio of Expenses to
Average Net Assets 1.61% 1.70% 1.70% 1.70% 1.70% 2.35% 2.45% 2.45%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 1.30% 0.59% 0.71% 1.01% 0.98% 0.60% (0.11)% 0.45%**
Portfolio Turnover Rate 108% 45% 44% 39% 30% 108% 45% 44%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.03 $ 0.10 $ 0.04 $ 0.09 $ 0.02 $ 0.09 $ 0.22
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.62% 1.90% 2.06% 2.03% 2.58% 2.36% 2.65% 2.81%**
Net Investment Income
(Loss) to Average Net
Assets 1.30% 0.40% 0.35% 0.68% 0.10% 0.60% (0.30)% 0.09%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.24 $ 14.49 $ 12.43 $ 11.90 $ 11.05
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.08 (0.03) 0.12 0.04 0.06
Net Realized and Unrealized
Gain 2.05 2.73 2.75 0.65 0.86
-------- -------- -------- -------- --------
Total From Investment
Operations 2.13 2.70 2.87 0.69 0.92
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.24) (0.46) (0.33) -- --
In Excess of Net Investment
Income -- -- -- (0.03) --
Net Realized Gain (1.83) (0.49) (0.48) (0.13) (0.07)
-------- -------- -------- -------- --------
Total Distributions (2.07) (0.95) (0.81) (0.16) (0.07)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 16.30 $ 16.24 $ 14.49 $ 12.43 $ 11.90
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (1) 15.37% 19.69% 23.65% 5.84% 8.34%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $108,650 $ 78,199 $ 63,025 $ 40,460 $ 29,892
Ratio of Expenses to Average
Net Assets 2.55% 2.45% 2.45% 2.45% 2.45%
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.52% (0.16)% (0.04)% 0.25% 0.23%
Portfolio Turnover Rate 108% 45% 44% 39% 30%
- ------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.03 $ 1.16 $ 0.05 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.56% 2.65% 2.81% 2.78% 3.34%
Net Investment Income (Loss)
to Average Net Assets 0.52% (0.34)% (0.40)% (0.08)% (0.66)%
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive sale charges or deferred sales
charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
-----------------------
125
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A --------------------------------
-------------------------------------------------------- AUGUST
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 1, 1995+
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994 1998# 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 9.91 $ 9.91 $ 10.24
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.39 0.44 0.53 0.56 0.52 0.32 0.41 0.64
Net Realized and
Unrealized Gain
(Loss) 0.13 (0.02) (0.01) 0.50 (0.42) 0.13 (0.07) (0.26)
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 0.52 0.42 0.52 1.06 0.10 0.45 0.34 0.38
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.39) (0.35) (0.79) (0.36) (0.50) (0.33) (0.29) (0.69)
In Excess of Net
Investment Income (0.01) (0.06) (0.02) -- (0.12) (0.01) (0.05) (0.02)
Net Realized Gain (0.05) -- -- -- (0.47) (0.05) -- --
In Excess of Net
Realized Gain -- -- -- -- (0.03) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (0.45) (0.41) (0.81) (0.36) (1.12) (0.39) (0.34) (0.71)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 10.02 $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 9.97 $ 9.91 $ 9.91
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 5.36% 4.27% 5.20% 11.41% 0.41% 4.65% 3.48% 3.76%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 4,413 $ 6,407 $ 7,432 $ 11,092 $ 10,369 $ 1,425 $ 1,716 $ 1,440
Ratio of Expenses to
Average Net Assets 1.45% 1.45% 1.45% 1.45% 1.45% 2.20% 2.20% 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 3.94% 4.40% 5.02% 5.84% 4.70% 3.21% 3.65% 3.38%**
Portfolio Turnover Rate 78% 170% 223% 169% 168% 78% 170% 223%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During
the Period
Per Share Benefit to
Net Investment Income $ 0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.11 $ 0.15 $ 0.13 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.00% 2.57% 2.16% 2.22% 2.48% 3.75% 3.37% 3.57%**
Net Investment Income
to Average Net Assets 2.42% 3.25% 4.31% 5.07% 3.67% 1.65% 2.45% 2.01%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.32 0.39 0.37 0.49 0.43
Net Realized and
Unrealized Gain
(Loss) 0.13 (0.05) 0.08 0.47 (0.40)
-------- -------- -------- -------- --------
Total From Investment
Operations 0.45 0.34 0.45 0.96 0.03
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.33) (0.29) (0.73) (0.30) (0.44)
In Excess of Net
Investment Income (0.01) (0.05) (0.02) -- (0.11)
Net Realized Gain (0.05) -- -- -- (0.47)
In Excess of Net
Realized Gain -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total Distributions (0.39) (0.34) (0.75) (0.30) (1.05)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 9.96 $ 9.90 $ 9.90 $ 10.20 $ 9.54
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (1) 4.65% 3.48% 4.47% 10.24% (0.25)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Asets, End of Period
(000's) $ 1,888 $ 2,445 $ 2,844 $ 5,965 $ 5,407
Ratio of Expenses to
Average Net Assets 2.20% 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment
Income to Average Net
Assets 3.21% 3.65% 4.35% 5.09% 3.95%
Portfolio Turnover Rate 78% 170% 223% 169% 168%
- -------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.15 $ 0.12 $ 0.06 $ 0.08 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.75% 3.35% 2.87% 2.97% 3.29%
Net Investment Income
to Average Net Assets 1.67% 2.48% 3.68% 4.32% 2.86%
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
- ------------------
126
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0469 0.0443 0.0464 0.0448 0.0243
Net Realized and
Unrealized Gain
(Loss) -- -- (0.0011) -- 0.0011
------------ ------------ ------------ ------------ ------------
Total From Investment
Operations 0.0469 0.0443 0.0453 0.0448 0.0254
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.0469) (0.0443) (0.0464) (0.0448) (0.0243)
Net Realized Gain -- -- (0.0001) -- (0.0011)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.0469) (0.0443) (0.0465) (0.0448) (0.0254)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL RETURN 4.79% 4.53% 4.72% 4.58% 2.45%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 56,302 $ 94,768 $ 145,978 $ 67,505 $ 102,551
Ratio of Expenses to
Average Net Assets 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Investment
Income to Average Net
Assets 4.64% 4.43% 4.68% 4.61% 2.40%
- ---------------------------------------------------------------------------------------------------------
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.22% 1.27% 1.24% 1.12% 1.22%
Net Investment Income
to Average Net Assets 4.38% 4.10% 4.39% 4.44% 2.13%
</TABLE>
- --------------------------------------------------------------------------------
-----------------------
127
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
HIGH YIELD & TOTAL RETURN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------- --------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1998# 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.86 $ 11.92 $ 12.00 $ 12.86 $ 11.93 $ 12.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.97 1.07 0.13 0.87 0.98 0.12
Net Realized and
Unrealized Gain
(Loss) 0.35 0.99 (0.09) 0.34 0.99 (0.09)
-------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.32 2.06 0.04 1.21 1.97 0.03
-------- -------- -------- -------- -------- --------
DISTRIBUTION:
Net Investment Income (0.97) (1.07) (0.12) (0.89) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) -- (0.55) (0.05) --
-------- -------- -------- -------- -------- --------
Total Distributions (1.52) (1.12) (0.12) (1.44) (1.04) (0.10)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.66 $ 12.86 $ 11.92 $ 12.63 $ 12.86 $ 11.93
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 10.81% 18.12% 0.29% 9.86% 17.22% 0.21%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 7,813 $ 8,980 $ 3,907 $ 18,420 $ 8,617 $ 3,421
Ratio of Expenses to
Average Net Assets 1.25% 1.25% 1.25%** 2.00% 2.00% 2.00%**
Ratio of Net Investment
Income to Average Net
Assets 7.42% 8.83% 6.85%** 6.70% 7.99% 6.08%**
Portfolio Turnover Rate 81% 104% 10% 81% 104% 10%
- -------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period Per
Share Benefit to Net
Investment Income $ 0.08 $ 0.10 $ 0.04 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.89% 2.04% 3.51%** 2.64% 2.82% 4.25%**
Net Investment Income
to Average Net Assets 6.78% 8.04% 4.59%** 6.04% 7.17% 3.83%**
<CAPTION>
CLASS C
--------------------------------
YEAR YEAR MAY 1,
ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.86 $ 11.93 $ 12.00
-------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.86 0.99 0.12
Net Realized and
Unrealized Gain
(Loss) 0.35 0.98 (0.09)
-------- -------- --------
Total From Investment
Operations 1.21 1.97 0.03
-------- -------- --------
DISTRIBUTION:
Net Investment Income (0.89) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) --
-------- -------- --------
Total Distributions (1.44) (1.04) (0.10)
-------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.63 $ 12.86 $ 11.93
-------- -------- --------
-------- -------- --------
TOTAL RETURN (1) 9.86% 17.21% 0.21%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 8,145 $ 4,970 $ 3,316
Ratio of Expenses to
Average Net Assets 2.00% 2.00% 2.00%**
Ratio of Net Investment
Income to Average Net
Assets 6.63% 8.03% 6.07%**
Portfolio Turnover Rate 81% 104% 10%
- --------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period Per
Share Benefit to Net
Investment Income $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.64% 2.88% 4.25%**
Net Investment Income
to Average Net Assets 6.01% 7.15% 3.82%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
- ------------------
128
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------- ---------------------------- ----------------------------
JULY 1, JULY 1, JULY 1,
YEAR ENDED 1996* TO YEAR ENDED 1996* TO YEAR ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1998# 1997 1998# 1997
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.91 $ 12.00 $ 13.84 $ 12.00 $ 13.83 $ 12.00
------------ ------------ ------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.17 0.17 0.05 0.10 0.05 0.06
Net Realized and
Unrealized Gain 0.96 1.88 0.97 1.85 0.99 1.88
------------ ------------ ------------ ------------ ------------ ------
Total From Investment
Operations 1.13 2.05 1.02 1.95 1.04 1.94
------------ ------------ ------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.18) (0.13) (0.13) (0.10) (0.08) (0.10)
Net Realized Gain (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------ ------------ ------
Total Distributions (0.19) (0.14) (0.14) (0.11) (0.09) (0.11)
------------ ------------ ------------ ------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 14.85 $ 13.91 $ 14.72 $ 13.84 $ 14.78 $ 13.83
------------ ------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------------ ------
TOTAL RETURN (1) 8.32% 17.30% 7.55% 16.40% 7.55% 16.27%
------------ ------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 66,817 $ 21,961 $ 51,541 $ 18,215 $ 15,520 $ 9,156
Ratio of Expenses to
Average Net Assets 1.65% 1.65%** 2.40% 2.40%** 2.40% 2.40%**
Ratio of Net Investment
Income to Average Net
Assets 1.19% 1.39%** 0.40% 0.54%** 0.36% 0.29%**
Portfolio Turnover Rate 35% 22% 35% 22% 35% 22%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.11 $ 0.02 $ 0.17 $ 0.02 $ 0.21
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.82% 2.50%** 2.57% 3.34%** 2.56% 3.45%**
Net Investment Income
(Loss) to Average Net
Assets 1.02% 0.52%** 0.23% (0.42)%** 0.20%** (0.77)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
-----------------------
129
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.39 $ 12.63 $ 9.08 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.01) 0.02 0.10 (0.02)
Net Realized and
Unrealized Gain
(Loss) (2.73) 6.46 3.47 (2.70)
------------ ------------ ------------ ------------
Total From Investment
Operations (2.74) 6.48 3.57 (2.72)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) --
In Excess of Net
Investment Income -- (0.09) -- --
Net Realized Gain (1.92) (1.63) -- --
In Excess of Net
Realized Gain (1.31) -- -- --
Return of Capital -- -- -- (0.20)
------------ ------------ ------------ ------------
Total Distributions (3.23) (1.72) (0.02) (0.20)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 11.42 $ 17.39 $ 12.63 $ 9.08
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (1) (17.37)% 57.32% 39.35% (23.07)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 44,439 $ 84,401 $ 18,701 $ 7,658
Ratio of Expenses to
Average Net Assets 2.25% 2.24% 2.11% 2.46%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.09)% (0.08)% 1.18% (0.44)%**
Portfolio Turnover Rate 249% 241% 131% 107%
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.10 $ 0.09 $ 0.13
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.41% 2.77% 3.28% 4.30%**
Net Investment Income
(Loss) to Average Net
Assets (0.24)% (0.61)% 0.01% (2.26)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.10% 2.10% 2.10% 2.10%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
AUGUST 1,
YEAR ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.99 $ 12.45 $ 9.58
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) (0.03) 0.03
Net Realized and
Unrealized Gain
(Loss) (2.65) 6.28 2.84
------------ ------------ ------
Total From Investment
Operations (2.73) 6.25 2.87
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net
Investment Income -- (0.08) --
Net Realized Gain (1.92) (1.63) --
In Excess of Net
Realized Gain (1.31) -- --
Return of Capital -- -- --
------------ ------------ ------
Total Distributions (3.23) (1.71) --
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 11.03 $ 16.99 $ 12.45
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) (17.82)% 56.17% 29.26%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 24,206 $ 14,314 $ 2,041
Ratio of Expenses to
Average Net Assets 2.99% 2.99% 2.87%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.58)% (0.78)% 0.88%**
Portfolio Turnover Rate 249% 241% 131%
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.16% 3.55% 3.89%**
Net Investment Income
(Loss) to Average Net
Assets (0.73)% (1.34)% (0.14)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.85% 2.85% 2.85%**
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------
JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.01 $ 12.43 $ 8.99 $ 12.00
------------ ------------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.11) (0.07) 0.04 (0.08)
Net Realized and
Unrealized Gain
(Loss) (2.63) 6.31 3.40 (2.73)
------------ ------------ ------ ------
Total From Investment
Operations (2.74) 6.24 3.44 (2.81)
------------ ------------ ------ ------
DISTRIBUTIONS
In Excess of Net
Investment Income -- (0.03) -- --
Net Realized Gain (1.92) (1.63) -- --
In Excess of Net
Realized Gain (1.31) -- -- --
Return of Capital -- -- -- (0.20)
------------ ------------ ------ ------
Total Distributions (3.23) (1.66) -- (0.20)
------------ ------------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 11.04 $ 17.01 $ 12.43 $ 8.99
------------ ------------ ------ ------
------------ ------------ ------ ------
TOTAL RETURN (1) (17.86)% 56.04% 38.26% (23.83)%
------------ ------------ ------ ------
------------ ------------ ------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 14,577 $ 20,345 $ 6,780 $ 4,085
Ratio of Expenses to
Average Net Assets 3.00% 2.99% 2.86% 3.20%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.77)% (0.79)% 0.42% (1.16)%**
Portfolio Turnover Rate 249% 241% 131% 107%
- -----------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.16% 3.56% 4.06% 5.20%**
Net Investment Income
(Loss) to Average Net
Assets (0.93)% (1.36)% (0.78)% (3.16)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.85% 2.85% 2.85% 2.85%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
** Annualized
+ The Fund began offering Class B shares on August 1, 1995
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
- ------------------
130
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0472 0.0450 0.0463 0.0446 0.0246
Net Realized and Unrealized
Gain (Loss) -- -- (0.0006) 0.0001 --
---------- ---------- ---------- ---------- ----------
Total From Investment
Operations 0.0472 0.0450 0.0457 0.0447 0.0246
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS:
Net Investment Income (0.0472) (0.0450) (0.0463) (0.0446) (0.0246)
Net Realized Gain -- -- -- (0.0001) --
---------- ---------- ---------- ---------- ----------
Total Distributions (0.0472) (0.0450) (0.0463) (0.0447) (0.0246)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1) 4.83% 4.60% 4.72% 4.55% 2.49%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 119,376 $ 138,422 $ 170,973 $ 171,515 $ 176,599
Ratio of Expenses to Average
Net Assets 0.98% 0.98% 0.98% 0.98% 0.98%
Ratio of Net Investment Income
to Average Net Assets 4.72% 4.50% 4.65% 4.45% 2.45%
- -----------------------------------------------------------------------------------------------
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.10% 1.27% 1.22% 1.18% 1.19%
Net Investment Income to
Average Net Assets 4.61% 4.20% 4.41% 4.25% 2.24%
</TABLE>
- --------------------------------------------------------------------------------
(1) Total returns for periods of less than one year are not annualized.
-----------------------
131
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------- --------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996 1998# 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.39 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.50 0.37 0.08 0.39 0.15 0.07
Net Realized and
Unrealized Gain 0.88 4.03 0.48 0.82 4.12 0.48
-------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.38 4.40 0.56 1.21 4.27 0.55
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.51) (0.29) (0.04) (0.39) (0.19) (0.03)
In Excess of Net
Investment Income (0.05) -- -- (0.04) -- --
Net Realized Gain (1.60) (0.24) -- (1.60) (0.24) --
-------- -------- -------- -------- -------- --------
Total Distributions (2.16) (0.53) (0.04) (2.03) (0.43) (0.03)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.61 $ 16.39 $ 12.52 $ 15.54 $ 16.36 $ 12.52
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 8.27% 35.75% 4.63% 7.23% 34.58% 4.54%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 16,873 $ 14,827 $ 1,829 $ 15,197 $ 7,120 $ 2,197
Ratio of Expenses to
Average Net Assets 1.55% 1.55% 1.55%** 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.99% 2.33% 4.11%** 2.36% 1.49% 3.35%**
Portfolio Turnover Rate 130% 143% 0% 130% 143% 0%
- -------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.09 $ 0.16 $ 0.08 $ 0.09 $ 0.11 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.09% 2.51% 5.58%** 2.84% 3.39% 6.34%**
Net Investment Income
(Loss) to Average Net
Assets 2.45% 1.36% 0.08%** 1.82% 0.39% (0.69)%**
<CAPTION>
CLASS C
--------------------------------
YEAR YEAR MAY 1,
ENDED ENDED 1996* TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1998# 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.36 $ 12.52 $ 12.00
-------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.39 0.20 0.07
Net Realized and
Unrealized Gain 0.83 4.07 0.48
-------- -------- --------
Total From Investment
Operations 1.22 4.27 0.55
-------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.39) (0.19) (0.03)
In Excess of Net
Investment Income (0.04) -- --
Net Realized Gain (1.60) (0.24) --
-------- -------- --------
Total Distributions (2.03) (0.43) (0.03)
-------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.55 $ 16.36 $ 12.52
-------- -------- --------
-------- -------- --------
TOTAL RETURN (1) 7.20% 34.56% 4.54%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 4,187 $ 2,369 $ 1,782
Ratio of Expenses to
Average Net Assets 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.31% 1.46% 3.39%**
Portfolio Turnover Rate 130% 143% 0%
- --------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.09 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.83% 3.58% 6.32%**
Net Investment Income
(Loss) to Average Net
Assets 1.78% 0.16% (0.63)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
- ------------------
132
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ------------ ------------
JULY 7, JULY 7, JULY 7,
1997* 1997* 1997*
JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1998# 1998# 1998#
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.03 0.03
Net Realized and Unrealized Gain 0.56 0.56 0.55
------------ ------------ ------------
Total From Investment Operations 0.67 0.59 0.58
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.08) (0.03) (0.03)
In Excess of Net Investment Income (0.01) (0.00)++ (0.00)++
Net Realized Gain (0.05) (0.05) (0.05)
------------ ------------ ------------
Total Distributions (0.14) (0.08) (0.08)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.51 $ 10.50
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) 6.74% 6.01% 5.83%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 137,447 $ 142,741 $ 35,564
Ratio of Expenses to Average Net Assets 1.45%** 2.20%** 2.20%**
Ratio of Net Investment Income to
Average Net Assets 1.02%** 0.28%** 0.29%**
Portfolio Turnover Rate 38% 38% 38%
- ----------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.60%** 2.35%** 2.35%**
Net Investment Income to Average Net
Assets 0.88%** 0.14%** 0.15%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital changes per share are based upon
monthly average shares outstanding.
-----------------------
133
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------- CLASS B
APRIL --------------------------------
YEAR YEAR YEAR YEAR 21, YEAR YEAR AUGUST
ENDED ENDED ENDED ENDED 1994* ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 30, 1994 1998# 1997 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.00 $ 14.20 $ 12.44 $ 11.63
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.15 1.25 1.36 1.26 0.18 1.04 1.07 1.18
Net Realized and
Unrealized Gain
(Loss) (0.67) 2.30 0.80 (0.52) 0.16 (0.65) 2.35 0.72
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 0.48 3.55 2.16 0.74 0.34 0.39 3.42 1.90
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (1.09) (1.25) (1.26) (1.22) (0.17) (1.00) (1.15) (1.09)
Net Realized Gain (1.19) (0.51) -- (0.12) -- (1.19) (0.51) --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.28) (1.76) (1.26) (1.34) (0.17) (2.19) (1.66) (1.09)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.46 $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.40 $ 14.20 $ 12.44
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (1) 3.40% 30.29% 19.61% 6.87% 2.86% 2.63% 29.14% 17.07%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 91,579 $ 76,439 $ 41,493 $ 14,819 $ 6,857 $146,401 $ 78,340 $ 26,174
Ratio of Expenses to
Average Net Assets 1.45% 1.52% 1.55% 1.55% 1.55%** 2.20% 2.27% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 8.36% 9.73% 11.95% 11.53% 8.29%** 7.64% 8.86% 12.06%**
Portfolio Turnover Rate 156% 157% 220% 178% 19% 156% 157% 220%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.02 $ 0.05 $ 0.02 $ -- $ -- $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 1.69% 1.97% 3.23%** -- -- 2.47%**
Net Investment Income
to Average Net Assets -- -- 11.81% 11.11% 6.61%** -- -- 11.89%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------
APRIL
YEAR YEAR YEAR YEAR 21,
ENDED ENDED ENDED ENDED 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE
AND RATIOS 1998# 1997 1996 1995 30, 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.21 $ 12.45 $ 11.58 $ 12.16 $ 12.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.04 1.16 1.30 1.17 0.17
Net Realized and
Unrealized Gain
(Loss) (0.66) 2.26 0.77 (0.50) 0.15
-------- -------- -------- -------- --------
Total From Investment
Operations 0.38 3.42 2.07 0.67 0.32
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (1.00) (1.15) (1.20) (1.13) (0.16)
Net Realized Gain (1.19) (0.51) -- (0.12) --
-------- -------- -------- -------- --------
Total Distributions (2.19) (1.66) (1.20) (1.25) (0.16)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.40 $ 14.21 $ 12.45 $ 11.58 $ 12.16
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (1) 2.55% 29.12% 18.71% 6.20% 2.62%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 60,197 $ 41,709 $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to
Average Net Assets 2.20% 2.27% 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 7.62% 9.04% 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 156% 157% 220% 178% 19%
- -------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 2.44% 2.74% 4.00%**
Net Investment Income
to Average Net Assets -- -- 11.26% 10.28% 5.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon
monthly average shares outstanding.
- ------------------
134
The accompanying notes are an integral part of the financial statements.
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
Van Kampen Series Fund, Inc. (formerly Morgan Stanley Fund, Inc.) (the "Fund")
was incorporated under the laws of Maryland on August 14, 1992 and commenced
operations on January 4, 1993. The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company
which offers redeemable shares of diversified and non-diversified investment
portfolios.
As of June 30, 1998, the Fund had sixteen separate active investment portfolios:
Van Kampen Aggressive Equity Fund (formerly Morgan Stanley Aggressive Equity
Fund), Van Kampen American Value Fund (formerly Morgan Stanley American Value
Fund), Van Kampen Asian Growth Fund (formerly Morgan Stanley Asian Growth Fund),
Van Kampen Emerging Markets Fund (formerly Morgan Stanley Emerging Markets
Fund), Van Kampen Equity Growth Fund, Van Kampen Global Equity Fund (formerly
Morgan Stanley Global Equity Fund), Van Kampen Global Equity Allocation Fund
(formerly Morgan Stanley Global Equity Allocation Fund), Van Kampen Global Fixed
Income Fund (formerly Morgan Stanley Global Fixed Income Fund), Morgan Stanley
Government Obligations Money Market Fund, Van Kampen High Yield & Total Return
Fund (formerly Morgan Stanley High Yield Fund), Van Kampen International Magnum
Fund (formerly Morgan Stanley International Magnum Fund), Van Kampen Latin
American Fund (formerly Morgan Stanley Latin American Fund), Morgan Stanley
Money Market Fund, Van Kampen U.S. Real Estate Fund (formerly Morgan Stanley
U.S. Real Estate Fund), Van Kampen Value Fund (formerly Morgan Stanley Value
Fund), and Van Kampen Worldwide High Income Fund (formerly Morgan Stanley
Worldwide High Income Fund) (referred to herein respectively as "Aggressive
Equity Fund," "American Value Fund," "Asian Growth Fund," "Emerging Markets
Fund," "Equity Growth Fund," "Global Equity Fund", "Global Equity Allocation
Fund," "Global Fixed Income Fund," "Government Obligations Money Market Fund"
"High Yield & Total Return Fund," "International Magnum Fund," "Latin American
Fund," "Money Market Fund," "U.S. Real Estate Fund," "Value Fund," "Worldwide
High Income Fund," and individually a "Portfolio" and collectively as the
"Portfolios"). The financial statements of the Equity Growth Fund are presented
separately.
The Fund currently offers three classes of shares, Class A, Class B, and Class C
Shares (with the exception of the Government Obligations Money Market and Money
Market Funds). Class A shares are sold with a front-end sales charge of up to
5.75% (4.75% for shares sold in the Global Fixed Income Fund, High Yield & Total
Return Fund and the Worldwide High Income Fund). For certain purchases of Class
A shares, the front-end sales charge may be waived and a contingent deferred
sales charge of 1.00% imposed in the event of certain redemptions within one
year of the purchase. Class B shares are sold with a contingent deferred sales
charge on redemptions made within 5 years of purchase which declines annually
from 5% for redemptions made in year one, down to 1.50% in year five. The
contingent deferred sales charge is based on the lesser of the current market
value of the shares redeemed or the total cost of such shares. Class B shares
will automatically convert to Class A shares after the eighth year following
purchase. Class C shares are sold with a contingent deferred sales charge of 1%
for shares that are redeemed within one year of purchase, based on the lesser of
the current market value of the shares redeemed or the total cost of such
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. The Fund began offering the current Class B shares on August
1, 1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
The Global Equity Fund, and Value Fund commenced operations on October 29, 1997
and July 7, 1997 respectively.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average of the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities may be valued according to the broadest
and most representative market. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
which take into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. Securities
owned by the Government Obligations Money Market and Money Market Funds are
stated at amortized cost, which approximates market value. All other securities
and assets for which market values are not readily available are valued at fair
value as determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
At June 30, 1998, approximately 93% and 91% of the net assets of the High Yield
& Total Return Fund and the Worldwide High Income Fund, respectively, consisted
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more
------------------
135
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
sensitive to economic conditions than higher rated securities. Certain
securities may be valued on the basis of bid prices provided by one principal
market maker.
2. TAXES: It is each portfolio's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements. A portfolio may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
At June 30, 1998, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by U.S.
Federal income tax regulations, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE EXPIRATION DATE
JUNE 30, 2004 JUNE 30, 2006
PORTFOLIOS (000) (000)
- ------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Asian Growth......................... -- $ 53,293
Government Obligations Money
Market............................. $ 88 --
Money Market......................... $ 70 --
</TABLE>
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by a Portfolio for gains realized and not distributed. To the extent that
capital gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the period from November 1, 1997 to June 30, 1998 certain
Portfolios incurred and elected to defer until July 1, 1998, for U.S. Federal
income tax purposes, net currency and capital losses of approximately:
<TABLE>
<CAPTION>
CURRENCY
AND CAPITAL
LOSSES
PORTFOLIOS (000)
- ------------------------------------- -------------------
<S> <C>
Asian Growth......................... $ 71,758
Global Fixed Income.................. 89
Emerging Markets..................... 26,330
Latin American....................... 6,468
</TABLE>
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) on
investments are included in the reported net realized and unrealized gains
(losses) on investments. However, pursuant to U.S. Federal income tax
regulations, the foreign currency portion of gains and losses realized on sales
and maturities of foreign denominated debt securities is treated as ordinary
income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency exchange
contracts, disposition of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains (losses) from valuing foreign
currency denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in the Statement of Assets and
Liabilities. The change in net unrealized currency gains (losses) for the period
is reflected on the Statement of Operations.
The net assets of certain Portfolios include issuers located in emerging
markets. There will be certain considerations and risks of these investments not
typically associated with investments in the United States. Changes in currency
- -----------------------
136
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
exchange rates will affect the value of and investment income from such
securities. The smaller size of the markets themselves, lesser liquidity and
greater volatility contribute to risks in valuation as compared with the U.S.
securities markets. Also there is often substantially less publicly available
information about these issuers. Emerging markets may be subject to a greater
degree of governmental involvement in the economy and greater economic and
political uncertainty. Accordingly the price which the Fund realizes upon the
sale of securities in such markets may not be equal to its value as presented in
the financial statements.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
domestic companies may be subject to limitations in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as "Foreign"
in the Portfolio of Investments) may be created and offered for investment. The
"local" and "foreign" shares' market values may vary.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
rates. A currency exchange contract is an agreement between two parties to buy
or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Portfolio as unrealized gain or loss on foreign currency translation. The
Portfolio records realized gains or losses on foreign translation when the
contract is closed, equal to the difference between the value of the contract at
the time it was opened and the value of the contract at the time it was closed.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts but is generally limited
to the amount of unrealized gain on the contracts, if any, at the date of
default. Risks may also arise from the unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
6. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a
transaction in which the Portfolios sell securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolios are obligated to purchase securities at the market
price to replace the borrowed securities at the time of replacement. The
Portfolios may have to pay a premium to borrow the securities as well as pay
dividends or interests payable on the securities until they are replaced. The
Portfolios' obligation to replace the securities borrowed in connection with a
short sale will generally be secured by collateral deposited with the broker
that consists of cash, U.S. government securities or other liquid, high grade
debt obligations. In addition, the Portfolios will place in a segregated account
with its Custodian an amount of cash, U.S. government securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short, and (2)
any cash, U.S. government securities, or other liquid high grade debt
obligations deposited as collateral with the broker in connection with the short
sale (not including the proceeds of the short sale). Short sales by the
Portfolios involve certain risks and special considerations. Possible losses
from short sales differ from losses that could be incurred from the purchase of
a security, because losses from short sales may be unlimited, whereas losses
from purchases cannot exceed the total amount invested.
7. PURCHASED OPTIONS: Certain Portfolios may purchase call or put options on
their portfolio securities. A Portfolio may purchase call options to protect
against an increase in the price of a security it anticipates purchasing. A
Portfolio may purchase put options on securities which it holds to protect
against a decline in the value of the security. Risks may arise from an
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
8. SECURITY LENDING: Certain Portfolios may lend investment securities to
qualified institutional investors who borrow securities in order to complete
certain transactions. By lending its investment securities, a Portfolio attempts
to increase its net investment income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that might
occur and any interest earned or dividends declared during the term of the loan
would accrue to the account of the Portfolio. Risks of delay in recovery of the
securities or even loss of rights in the collateral may occur should the
borrower of the securities fail financially. Risks may also arise to the extent
that the value of the collateral decreases below the value of the securities
loaned.
Portfolios that lend securities receive cash, securities issued or guaranteed by
the U.S. Government or letters of credit as collateral in an amount equal to or
exceeding 100% of the current market value of the loaned securities. Any cash
received as collateral is invested in interest bearing repurchase agreements
with approved counterparties. A portion of the interest received on the
repurchase agreements is retained by the Fund and the remainder is rebated to
the borrower of the securities. The net amount of interest earned and interest
rebated is included in the
------------------
137
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Statement of Operations as interest income. The value of loaned securities and
related collateral outstanding at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- ------------------------------------- ----------------------- -----------
<S> <C> <C>
Global Equity Allocation............. $ 19,776 $ 21,788
</TABLE>
At June 30, 1998, the Fund had invested the cash collateral in a repurchase
agreement with Goldman Sachs. Such repurchase agreement was collateralized by
U.S. Treasury obligations.
Morgan Stanley Trust Company, an affiliate of the Investment Sub-Adviser,
administers the security lending program and for its services the Fund incurred
fees in the amount of $29,000 for the year ended June 30, 1998.
9. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not exceeding 120 days) after
the date of the transaction. Additionally each Portfolio may purchase securities
on a when-issued or delayed delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and no income accrues to the Portfolio
on such securities prior to delivery. When the Portfolio enters into a purchase
transaction on a when-issued or delayed basis, it establishes a segregated
account in which it maintains liquid assets in an amount at least equal in value
to the Portfolio's commitments to purchase such securities. Purchasing
securities on a forward commitment or when-issued or delayed delivery basis may
involve a risk that the market price at the time of delivery may be lower than
the agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
10. STRUCTURED SECURITIES: The Worldwide High Income Fund may invest in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. Structured Securities generally will expose the
Portfolio to credit risks equivalent to that of the underlying instruments.
Structured Securities are typically sold in private placement transactions with
no active trading market. Investments in Structured Securities may be more
volatile than their underlying instruments, however, any loss is limited to the
amount of the original investment.
11. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a period of five years beginning with
each respective Portfolio's commencement of operations. Van Kampen Investments
Inc. has agreed that in the event any of its initial shares in a Portfolio which
comprised the Fund at its inception are redeemed, the proceeds on redemption
will be reduced by the pro-rata portion of any unamortized organizational costs
in the same proportion as the number of shares redeemed bears to the initial
shares held at the same time of redemption.
12. FUTURES CONTRACTS: Certain Portfolios may purchase and sell futures
contracts. Future contracts provide for the sale by one party and purchase by
another party of a specified amount of a specified security, instrument or
basket of instruments. Futures contracts (secured by cash and securities
deposited with brokers as "initial margin") are valued based upon their quoted
daily settlement prices; changes in initial settlement value (represented by
cash paid to or received from brokers as "variation margin") are accounted for
as unrealized appreciation (depreciation). When futures contracts are closed,
the difference between the opening value at the date of purchase and the value
at closing is recorded as realized gains or losses in the Statement of
Operations.
Certain Portfolios may use futures contracts in order to hedge against
unfavorable changes in the value of securities or to remain fully invested and
to reduce transaction costs. Futures contracts involve market risk in excess of
the amounts recognized in the Statement of Assets and Liabilities. Risks arise
from the possible movements in security values underlying these instruments
applied to the notional value of the contract. The change in value of futures
contracts primarily corresponds with the value of their underlying instruments,
which may not correlate with the change in value of the hedged investments. In
addition, there is the risk that a Portfolio may not be able to enter into a
closing transaction because of an illiquid secondary market.
13. SWAP AGREEMENTS: Certain Portfolios may enter into swap agreements to
exchange the return generated by one security, instrument or basket of
instruments for the return generated by another security, instrument or basket
of instruments. The following summarizes swaps which may be entered into by the
Portfolios:
Interest Rate Swaps: Interest rate swaps involve the exchange of commitments to
pay and receive interest based on a notional principal amount. Net periodic
interest payments to be received or paid are accrued daily and are recorded in
the Statement of Operations as an adjustment to interest income. Interest rate
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest in
exchange for a market-linked
- -----------------------
138
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
return based on a notional amount. To the extent the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Portfolio will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the change,
if any, is recorded as unrealized gains or losses in the Statement of
Operations. Periodic payments received or made at the end of each measurement
period, but prior to termination, are recorded as realized gains or losses in
the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and total
return swaps are presented in the Statement of Operations. Because there is no
organized market for these swap agreements, the value reported in the Statement
of Net Assets may differ from that which would be realized in the event the
Portfolio terminated its position in the agreement. Risks may arise upon
entering into these agreements from the potential inability of the
counterparties to meet the terms of the agreements and are generally limited to
the amount of net interest payments to be received and/or favorable movements in
the value of the underlying security, if any, at the date of default. Swap
contracts involve market risks in excess of the amounts recognized in the
Statement of Assets and Liabilities.
14. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends which
may be recorded as soon as the Portfolio is informed of such dividends), net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on the accrual basis except where
collection is in doubt. Discounts and premiums on securities purchased are
amortized according to the effective yield method over their respective lives.
Most expenses of the Fund can be directly attributed to a particular Portfolio.
Expenses which cannot be directly attributed are apportioned among the
Portfolios based upon relative net assets. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses are allocated to
each class of shares based upon their relative net assets. Distributions from
the Portfolios are recorded on the ex-distribution date.
Certain Portfolios own shares of real estate investment trusts ("REITs") which
report information on the source of their distributions annually. A portion of
distributions received from REITs during the year is estimated to be a return of
capital and is recorded as a reduction of the cost of those securities.
The amount and the character of income and capital gain distributions to be paid
by the Fund are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing book and tax treatment for foreign
currency transactions, net operating losses, foreign taxes on net realized
gains, deductibility of interest expense on short sales and gains on certain
securities of corporations designated as "passive foreign investment companies."
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income (loss),
accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income for the purpose
of presenting net investment income (loss) per share in the Financial
Highlights.
The reclassifications arising from current book/tax differences resulted in
increases (decreases) to the components of net assets as follows:
<TABLE>
<CAPTION>
ACCUMULATED
NET
UNDISTRIBUTED REALIZED
NET INVESTMENT GAIN PAID IN
INCOME (LOSS) CAPITAL
PORTFOLIO (000) (000) (000)
- ------------------------------------- -------------- ----------- --------
<S> <C> <C> <C>
Aggressive Equity.................... $1,093 $(1,093) $--
American Value....................... 1,962 (2,145) 183
Asian Growth......................... 1,332 (960) (372)
Emerging Markets..................... 186 (186) --
Global Equity........................ 751 (711) (40)
Global Equity Allocation............. 3,267 (5,391) 2,124
Global Fixed Income.................. (81) 81 --
Government Obligations
Money Market......................... 62 -- (62)
High Yield & Total Return............ 19 (19) --
International Magnum................. 949 (949) --
Latin American....................... 296 (296) --
Money Market......................... 62 -- (62)
U.S. Real Estate..................... 95 14 (109)
Value................................ 60 (2) (58)
Worldwide High Income................ (26) 74 (48)
</TABLE>
B. ADVISER: Van Kampen Investment Advisory Corp., (the "Adviser") a wholly owned
subsidiary of Van Kampen Funds Inc. (an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co.), Morgan Stanley Asset Management, Inc. ("MSAM"
or a "Sub-Adviser") and Miller Anderson & Sherred, LLP (a Sub-Adviser) wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the
------------------
139
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Portfolios, if necessary, if the annual operating expenses, as defined,
expressed as a percentage of average daily net assets, exceed the maximum ratios
indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
PORTFOLIO ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Aggressive Equity.................... 0.90% 1.50% 2.25%
American Value....................... 0.85% 1.50% 2.25%
Asian Growth......................... 1.00% 1.90% 2.65%
Emerging Markets..................... 1.25% 2.15% 2.90%
Global Equity........................ 1.00% 1.80% 2.55%
Global Equity Allocation............. 1.00% 1.70% 2.45%
Global Fixed Income.................. 0.75% 1.45% 2.20%
Government Obligations Money Market.. 0.45% 0.95% N/A
High Yield & Total Return............ 0.75% 1.25% 2.00%
International Magnum................. 1.00% 1.65% 2.40%
Latin American....................... 1.25% 2.10% 2.85%
Money Market......................... 0.45% 0.98% N/A
U.S. Real Estate..................... 1.00% 1.55% 2.30%
Value................................ 0.80% 1.45% 2.20%
Worldwide High Income................ 0.75% 1.55% 2.30%
</TABLE>
C. ADMINISTRATOR: Van Kampen Investment Advisory Corp. (the "Administrator")
also provides the Fund with administrative services pursuant to an
administrative agreement for a monthly fee which on an annual basis equals 0.25%
of the average daily net assets of each portfolio, plus reimbursement of
out-of-pocket expenses. Under an agreement between the Administrator and The
Chase Manhattan Bank ("Chase"), through its corporate affiliate Chase Global
Funds Services Company ("CGFSC"), Chase provides certain administrative services
to the Fund. Chase is compensated for such services by the Administrator from
the fee it receives from the Fund. Transfer Agency services are provided to the
Fund by Van Kampen Investor Services Inc., an affiliate of the advisor. The
Government Obligations Money Market Fund and the Money Market Fund have an
agreement with the Administrator to provide Transfer Agent services for its
shareholders. In addition, the Latin American Fund incurs local administration
fees in connection with doing business with certain emerging market countries.
D. DISTRIBUTOR: Van Kampen Funds Inc. the ("Distributor") a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co., serves as the Distributor of the
Fund's shares. The Distributor is entitled to receive from most Portfolios a
distribution fee, which is accrued daily and paid quarterly, of an amount up to
0.25% of the Class A shares and up to 1.00%, on an annualized basis, of the
average daily net assets attributable to the Class B and Class C shares of each
Portfolio. The Government Obligations Money Market and Money Market Funds pay
the Distributor a fee which is accrued daily and paid monthly, up to 0.50%, on
an annualized basis, of the average daily net assets of those Portfolios.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of each Portfolio
redeemed within one to five years following such purchase. For the year ended
June 30, 1998, the Distributor has advised the Fund that it earned initial sales
charges of $2,944,039 for Class A shares and deferred sales charges of $88,616,
$289,912 and $2,958,940 for Class A shares, Class B shares and Class C shares,
respectively.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly owned subsidiary
of Morgan Stanley Dean Witter & Co., acts as custodian for the Fund's assets
held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on assets held, investment
purchase and sales activity, an account maintenance fee, plus reimbursement for
certain out-of-pocket expenses.
For the year ended June 30, 1998, the following Portfolios incurred custody fees
and had amounts payable to MSTC at June 30, 1998:
<TABLE>
<CAPTION>
MSTC CUSTODY CUSTODY FEES
FEES INCURRED PAYABLE TO MSTC
FUND (000) (000)
- ------------------------------------- -------------------- -----------------------
<S> <C> <C>
Asian Growth......................... $ 414 $ 197
Emerging Markets..................... 746 361
Global Equity........................ 115 78
Global Equity Allocation............. 251 160
Global Fixed Income.................. 8 2
International Magnum................. 140 65
Latin American....................... 188 70
Worldwide High Income................ 11 18
</TABLE>
In addition, a Portfolio may earn interest income or incur interest expense
relating to cash balances with MSTC.
F. DIRECTORS' FEES: The Fund provides deferred compensation and retirement plans
for its trustees who are not officers of Van Kampen. Under the deferred
compensation plan, trustees may elect to defer all or a portion of their
compensation to a later date. Benefits under the retirement plan are payable for
a ten-year period and are based upon each trustee's years of service to the
Fund.
- -----------------------
140
<PAGE>
VAN KAMPEN SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1998
- --------------------------------------------------------------------------------
G. PURCHASES AND SALES: For the year ended June 30, 1998, purchases and sales of
investment securities other than long-term U.S. Government securities and
short-term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- ------------------------------------- ---------- --------
<S> <C> <C>
Aggressive Equity.................... $ 486,812 $366,496
American Value....................... 1,023,729 607,244
Asian Growth......................... 224,566 296,738
Emerging Markets..................... 191,844 178,043
Global Equity........................ 681,648 19,628
Global Equity Allocation............. 224,465 223,907
Global Fixed Income.................. 5,843 6,860
High Yield & Total Return............ 24,676 17,005
International Magnum................. 88,678 25,857
Latin American....................... 265,425 278,789
U.S. Real Estate..................... 54,250 41,923
Value................................ 328,003 63,695
Worldwide High Income................ 453,341 362,384
</TABLE>
Purchases and sales of long term U.S. Government securities during the year
ended June 30, 1998 occurred in the Global Fixed Income Fund and totaled
approximately $763,000 and $2,031,000, respectively.
H. OTHER: At June 30, 1998, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the U.S. dollar value of and investment
income from such securities.
During the year ended June 30, 1998, the Asian Growth Fund, Emerging Markets
Fund, Global Equity Fund, Global Equity Allocation Fund, International Magnum
Fund and Latin American Fund, incurred approximately $157,000, $42,000,
$189,000, $1,000, $8,000 and $53,000, respectively, as brokerage commissions
with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
At June 30, 1998, the Emerging Markets Fund and the Global Equity Allocation
Fund owned shares of affiliated funds for which the Funds earned dividend income
of approximately $87,400 and $1,298,000 and incurred losses of approximately
$468,000 and $519,000, respectively, on sales of shares in affiliated funds
during the period.
At June 30, 1998, two record shareholders owned 31% of the total shares
outstanding of the Global Fixed Income Fund and Van Kampen Funds Inc. owned 100
shares of each Class A, B, and C in the Van Kampen Value Fund.
At June 30, 1998, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
- ------------------------- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Aggressive Equity........ $216,709 $ 13,977 $ (11,687) $ 2,290
American Value........... 600,531 39,577 (25,131) 14,446
Asian Growth............. 123,952 3,965 (30,352) (26,387)
Emerging Markets......... 180,545 8,129 (47,334) (39,205)
Global Equity............ 709,740 104,349 (42,902) 61,447
Global Equity
Allocation............. 534,277 94,958 (19,275) 75,683
Global Fixed Income...... 7,552 221 (171) 50
Government Obligations
Money Market........... 56,317 -- -- --
High Yield & Total
Return................. 33,650 834 (629) 205
International Magnum..... 124,130 16,692 (7,319) 9,425
Latin American........... 98,724 -- (16,785) (16,785)
Money Market............. 118,940 -- -- --
U.S. Real Estate......... 35,219 695 (724) (29)
Value.................... 313,647 20,350 (19,349) 1,001
Worldwide High Income.... 294,931 2,691 (17,535) (14,844)
</TABLE>
I. PLAN OF REORGANIZATION: On June 12, 1998, the Global Equity Allocation Fund
acquired all of the assets and liabilities of the Van Kampen American Capital
Global Equity Fund (the "VK Fund"), through a tax-free reorganization approved
by the VK Fund shareholders on June 12, 1998. The Global Equity Allocation Fund
issued the following shares valued at the corresponding net assets in exchange
for VK Fund's net assets.
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES NET ASSETS
- ------------------------------------- ------------------------ ------------
<S> <C> <C>
A.................................... 10,988,132 $178,667,033
B.................................... 9,310,869 146,646,183
C.................................... 1,045,761 16,627,602
</TABLE>
Included in these net assets were unrealized appreciation of $41,291,000, and
cumulative book and tax basis differences related to expenses not yet deductible
for tax purposes of $34,540 as a result of timing differences related to the
directors deferred compensation plan which is a component of undistributed net
investment income. Combined net assets on the date of acquisition were
$595,637,112.
------------------
141
<PAGE>
VAN KAMPEN SERIES FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Van Kampen Series Fund Inc.
In our opinion, the accompanying statements 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 the Aggressive Equity Fund,
American Value Fund, Asian Growth Fund, Emerging Markets Fund, Global Equity
Fund, Global Equity Allocation Fund, Global Fixed Income Fund, Government
Obligations Money Market Fund, High Yield & Total Return Fund, International
Magnum Fund, Latin American Fund, Money Market Fund, U.S. Real Estate Fund,
Value Fund and the Worldwide High Income Fund (portfolios of the Van Kampen
Series Fund Inc. hereafter referred to as the "Fund") at June 30, 1998, the
results of each of their operations, the changes in each of their 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 June 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph St.
Chicago, Illinois 60601
August 11, 1998
- -----------------------
142
<PAGE>
VAN KAMPEN FUNDS
EQUITY GROWTH FUND
ANNUAL REPORT
JUNE 30, 1998
143
<PAGE>
VAN KAMPEN
EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.6%)
BASIC MATERIALS (2.1%)
800 Du Pont (EI) de Nemours Co. $ 60
900 Monsanto 50
----------
110
----------
CAPITAL GOODS (17.9%)
1,900 Case Corp. 92
1,200 Cordant Technologies, Inc. 55
(a)2,000 Gulfstream Aerospace Corp. 93
(a)2,600 Knoll, Inc. 77
1,100 Northrop Grumman Corp. 114
900 Pitney Bowes, Inc. 43
600 Textron, Inc. 43
1,000 Tyco International Ltd. 63
2,900 United Technologies Corp. 268
700 Xerox Corp. 71
----------
919
----------
COMMUNICATION SERVICES (2.5%)
800 American Telephone & Telegraph Co. 46
(a) 700 Associated Group, Inc. 'B' 28
(a)1,100 Worldcom, Inc. 53
----------
127
----------
CONSUMER CYCLICALS (10.3%)
(a)6,000 Cendant Corp. 125
300 Gannett Co., Inc. 21
1,900 General Motors Corp. 127
(a) 300 Harrah's Entertainment, Inc. 7
1,100 Hilton Hotels Corp. 31
800 Home Depot, Inc. 67
1,100 International Game Technology 27
700 ITT Industries, Inc. 26
600 Pulitzer Publishing Co. 54
(a) 800 Staples, Inc. 23
700 Young & Rubicam, Inc. 22
----------
530
----------
CONSUMER STAPLES (15.3%)
(a)1,200 Brinker International, Inc. 23
(a)2,600 Clear Channel Communications, Inc. 284
600 Coca-Cola Co. 51
2,000 Coca-Cola Enterprises, Inc. 79
500 Comcast Corp. 'B' 20
500 Cracker Barrel Old Country Store, Inc. 16
2,600 Philip Morris Cos., Inc. 102
500 Quaker Oats, Co. 27
400 Ralston-Ralston Purina Group 47
(a)1,200 SFX Entertainment, Inc. 'A' 55
500 Time Warner, Inc. 43
400 WM. Wrigley Jr. Co. 39
----------
786
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
144
<PAGE>
<TABLE>
<CAPTION>
VAN KAMPEN
EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS (cont.)
JUNE 30, 1998
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C>
ENERGY (0.9%)
700 Diamond Offshore Drilling, Inc. $ 28
300 Schlumberger Ltd. 20
----------
48
----------
FINANCIAL (26.4%)
1,100 ACE Ltd. 43
1,000 Allstate Corp. 92
1,600 American Express Co. 182
700 BankAmerica Corp. 61
2 Berkshire Hathaway, Inc. 157
800 Chase Manhattan Corp. 60
400 Citicorp 60
500 CMAC Investment Corp. 31
200 General RE Corp. 51
2,900 Loews Corp. 253
300 MBNA Corp. 10
500 Merrill Lynch & Co., Inc. 46
300 Morgan (J.P.) & Co., Inc. 35
600 Nationwide Financial Services, Inc. 'A' 31
100 Progressive Corp. 14
600 Provident Companies, Inc. 21
(a) 700 Reinsurance Group of America, Inc. 36
1,200 St. Paul Cos., Inc. 50
1,100 Travelers, Inc. 67
450 Washington Mutual, Inc. 19
100 Wells Fargo Co. 37
----------
1,356
----------
HEALTH CARE (1.8%)
300 Eli Lilly & Co. 20
300 Merck & Co., Inc. 40
300 Pfizer, Inc. 33
----------
93
----------
TECHNOLOGY (11.6%)
(a) 200 ADC Telecom, Inc. 7
500 America Online, Inc. 53
200 Ciena Corp. 14
(a) 500 Cisco Systems, Inc. 46
500 Computer Associates International, Inc. 28
(a) 400 Dell Computer Corp. 37
(a) 800 Ingram Micro, Inc. 35
500 Intel Corp. 37
200 International Business Machines Corp. 23
500 Linear Technology Corp. 30
(a)1,900 Litton Industries, Inc. 112
(a)1,300 Microsoft Corp. 141
400 Motorola, Inc. 21
(a) 200 Tellabs, Inc. 14
----------
598
----------
TRANSPORTATION (8.8%)
(a)7,400 Continental Airlines, 'B' 450
----------
TOTAL COMMON STOCKS (COST $4,879) 5,017
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
145
<PAGE>
VAN KAMPEN
EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS (cont.)
JUNE 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT (3.3%)
REPURCHASE AGREEMENT (3.3%)
$172 Chase Securities, Inc., 5.40%, dated 6/30/98,
due 7/1/98, to be repurchased at $172, collateralized
by $135 U.S. Treasury Bonds, 8.125%, due 5/15/21,
valued at $177 (COST $172) $ 172
----------
TOTAL INVESTMENTS (100.9%) (COST $5,051) 5,189
OTHER ASSETS IN EXCESS OF LIABILITIES (-0.9%) (46)
----------
NET ASSETS (100%) $ 5,143
----------
----------
</TABLE>
(a) - Non-income producing security
The accompanying notes are an integral part of the financial statements.
146
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF ASSETS AND LIABILITIES
EQUITY GROWTH FUND
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1998
(000)
- ---------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in Securities, at Value $ 5,189
Receivable for:
Investments Sold 41
Dividends 4
Investment Adviser 8
-------------
Total Assets 5,242
-------------
LIABILITIES:
Payable for:
Investments Purchased 84
Administrative Fees 1
Custody Fees 1
Professional Fees 8
Shareholder Reporting Expenses 1
Transfer Agent Fees 1
Filing and Registration Fees 3
-------------
Total Liabilities 99
-------------
NET ASSETS $ 5,143
-------------
-------------
NET ASSETS CONSIST OF:
Paid in Capital In Excess of Par $ 5,000
Accumulated Net Realized Gain 5
Unrealized Appreciation (Depreciation) on
Investments 138
-------------
NET ASSETS $ 5,143
-------------
-------------
CLASS A SHARES:
Net Assets $ 2,057
Shares Issued and Outstanding ($.001 par
value) (Authorized 2,625,000,000) 200
Net Asset Value and
Redemption Price Per Share $ 10.29
-------------
-------------
Maximum Sales Charge 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/ (100 - maximum sales charge)) $ 10.92
-------------
-------------
CLASS B SHARES:
Net Assets $ 1,543
Shares Issued and Outstanding ($.001 par
value) (Authorized 2,625,000,000) 150
Net Asset Value and Offering Price Per Share*** $ 10.28
-------------
-------------
CLASS C SHARES:
Net Assets $ 1,543
Shares Issued and Outstanding ($.001 par
value) (Authorized 2,625,000,000) 150
Net Asset Value and Offering Price Per Share*** $ 10.28
-------------
-------------
Investments at Cost $ 5,051
-------------
-------------
</TABLE>
*** Redemption price may be subject to a contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
147
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF OPERATIONS
EQUITY GROWTH FUND
<TABLE>
<CAPTION>
MAY 29, 1998*
TO JUNE 30,
(000)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 4
Interest 5
-----------------
Total Income 9
-----------------
EXPENSES:
Investment Advisory Fees 4
Less: Fees Waived (4)
-----------------
Net Investment Advisory Fees -
Administrative Fees 1
Custodian Fees 1
Professional Fees 8
Shareholder Reports 1
Transfer Agent Fees 1
Distribution Fees
Class A 1
Class B 1
Class C 1
Filing and Registration Fees 2
Expenses Reimbursed By
Adviser (8)
-----------------
Net Expenses 9
-----------------
Net Investment Income -
-----------------
NET REALIZED GAIN ON:
Investments 5
-----------------
Net Realized Gain 5
-----------------
CHANGE IN UNREALiZED
APPRECIATION/DEPRECIATION ON:
Investments 138
-----------------
Change in Unrealized
Appreciation/Depreciation 138
-----------------
Net Realized Gain and Change in
Unrealized Appreciation/Depreciation 143
-----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 143
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
148
<PAGE>
VAN KAMPEN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
EQUITY GROWTH FUND
<TABLE>
<CAPTION>
MAY 29, 1998*
TO JUNE 30, 1998
(000)
- --------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATION
Net Investment Income $ -
Net Realized Gain 5
Change in Unrealized Appreciation/Depreciation 138
------
Net Increase in Net Assets Resulting from Operations 143
------
Total Increase in Net Assets 143
------
NET ASSETS -Beginning of Period 5,000
------
NET ASSETS -End of Period $5,143
------
------
- --------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
149
<PAGE>
VAN KAMPEN FUNDS
FINANCIAL HIGHLIGHTS
EQUITY GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
MAY 29, 1998* MAY 29, 1998* MAY 29, 1998*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1998 TO JUNE 30, 1998 TO JUNE 30, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00
------------- --------------- ---------------
Income From Investment Operations
Net Realized Gain 0.29 0.28 0.28
------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $10.29 $10.28 $10.28
------------- --------------- ---------------
------------- --------------- ---------------
TOTAL RETURN (1) 2.90% 2.80% 2.80%
------------- --------------- ---------------
------------- --------------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $2,057 $1,543 $1,543
Ratio of Expenses to Average Net Assets 1.50%** 2.25%** 2.25%**
Ratio of Net Investment Income to Average Net Assets 0.51%** (0.25)%** (0.25)%**
Portfolio Turnover Rate 19% 19% 19%
- ----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income $0.02 $0.02 $0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 4.06%** 4.81%** 4.81%**
Net Investment Income to Average Net Assets (2.05)%** (2.81)%** (2.81)%**
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
The accompanying notes are an integral part of the financial statements.
150
<PAGE>
VAN KAMPEN FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
Van Kampen Series Fund, Inc. (formerly Morgan Stanley Funds, Inc.) (the "Fund")
was incorporated under the laws of Maryland on August 14, 1992 and commenced
operations on January 4, 1993. The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company
which offers redeemable shares of diversified and non-diversified investment
portfolios.
As of June 30, 1998, the Fund had sixteen separate active investment portfolios:
Van Kampen Aggressive Equity Fund (formerly Morgan Stanley Aggressive Equity
Fund), Van Kampen American Value Fund (formerly Morgan Stanley American Value
Fund), Van Kampen Asian Growth Fund (formerly Morgan Stanley Asian Growth Fund),
Van Kampen Emerging Markets Fund (formerly Morgan Stanley Emerging Markets
Fund), Van Kampen Equity Growth Fund, Van Kampen Global Equity Fund (formerly
Morgan Stanley Global Equity Fund), Van Kampen Global Equity Allocation Fund
(formerly Morgan Stanley Global Equity Allocation Fund), Van Kampen Global Fixed
Income Fund (formerly Morgan Stanley Global Fixed Income Fund), Van Kampen
Government Obligations Money Market Fund (formerly Morgan Stanley Government
Obligations Money Market Fund), Van Kampen High Yield & Total Return Fund
(formerly Morgan Stanley High Yield Fund), Van Kampen International Magnum Fund
(formerly Morgan Stanley International Magnum Fund), Van Kampen Latin American
Fund (formerly Morgan Stanley Latin American Fund), Van Kampen Money Market Fund
(formerly Morgan Stanley Money Market Fund), Van Kampen U.S. Real Estate Fund
(formerly Morgan Stanley U.S. Real Estate Fund), Van Kampen Value Fund (formerly
Morgan Stanley Value Fund), and Van Kampen Worldwide High Income Fund (formerly
Morgan Stanley Worldwide High Income Fund) (referred to herein respectively as
"Aggressive Equity Fund," "American Value Fund," "Asian Growth Fund," "Emerging
Markets Fund," "Equity Growth Fund," "Global Equity Fund," "Global Equity
Allocation Fund", "Global Fixed Income Fund," "Government Obligations Money
Market Fund" "High Yield & Total Return Fund," "International Magnum Fund,"
"Latin American Fund," "Money Market Fund," "U.S. Real Estate Fund," "Value
Fund," "Worldwide High Income Fund," and individually a "Portfolio" and
collectively as the "Portfolios"). The financial statements of the Equity
Growth Fund are presented here separately.
The Fund currently offers three classes of shares, Class A, Class B, and Class C
Shares. Class A shares are sold with a front-end sales charge of up to 5.75%.
For certain purchases of Class A shares, the front-end sales charge may be
waived and a contingent deferred sales charge of 1.00% imposed in the event of
certain redemptions within one year of the purchase. Class B shares are sold
with a contingent deferred sales charge on redemptions made within 5 years of
purchase which declines annually from 5% for redemptions made in year one, down
to 1.50% in year five. The contingent deferred sales charge is based on the
lesser of the current market value of the shares redeemed or the total cost of
such shares. Class B shares will automatically convert to Class A shares after
the eighth year following purchase. Class C shares are sold with a contingent
deferred sales charge of 1% for shares that are redeemed within one year of
purchase, based on the lesser of the current market value of the shares redeemed
or the total cost of such shares. All three classes of shares have identical
voting, dividend, liquidation and other rights. The Fund began offering the
current Class B shares on August 1, 1995. Class B shares held prior to May 1,
1995 were renamed Class C shares.
The Equity Growth Fund commenced operations on May 29, 1998.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which takes into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. TAXES: It is the portfolio's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements. A portfolio may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
To the extent that capital loss carryforwards are used to offset any future
net capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by the Portfolio for gains realized and not distributed. To the extent that
capital gains are so offset, such gains will not be distributed to shareholders.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction
151
<PAGE>
VAN KAMPEN FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
of the obligation. In the event of default or bankruptcy by the counterparty to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends which
may be recorded as soon as the Portfolio is informed of such dividends), net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on the accrual basis except where
collection is in doubt. Discounts and premiums on securities purchased are
amortized according to the effective yield method over their respective lives.
Most expenses of the Fund can be directly attributed to a particular Portfolio.
Expenses which cannot be directly attributed are apportioned among the
Portfolios based upon relative net assets. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses are allocated to
each class of shares based upon their relative net assets. Distributions from
the Portfolios are recorded on the ex-distribution date.
The amount and the character of income and capital gain distributions to be paid
by the Fund are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing book and tax treatment for foreign
currency transactions, net operating losses, foreign taxes on net realized
gains, deductibility of interest expense on short sales and gains on certain
securities of corporations designated as "passive foreign investment companies."
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income (loss),
accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income for the purpose
of presenting net investment income (loss) per share in the Financial
Highlights.
B. ADVISER: Van Kampen Investment Advisory Corp., (the "Adviser") a wholly
owned subsidiary of Van Kampen Funds Inc. (an indirect wholly owned subsidiary
of Morgan Stanley Dean Witter & Co.), Morgan Stanley Asset Management, Inc.
("MSAM" or a "Sub-Adviser") and Miller Anderson & Sherrerd LLP, wholly owned
subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the Portfolios, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
PORTFOLIO ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
--------- ------------ -------------- --------------
<S> <C> <C> <C>
Equity Growth 0.70% 1.50% 2.25%
</TABLE>
C. ADMINISTRATOR: Van Kampen Investment Advisory Corp. (the "Administrator")
also provides the Fund with administrative services pursuant to an
administrative agreement for a monthly fee which on an annual basis equals 0.25%
of the average daily net assets of the portfolio, plus reimbursement of
out-of-pocket expenses. Under an agreement between the Adviser and The Chase
Manhattan Bank ("Chase"), through its corporate affiliate Chase Global Funds
Services Company ("CGFSC"), Chase provides certain administrative services to
the Fund. Chase is compensated for such services by the Adviser from the fee it
receives from the Fund. Transfer Agency services are provided to the Fund by Van
Kampen Investor Services, Inc., an affiliate of the advisor.
D. DISTRIBUTOR: Van Kampen Funds Inc. the ("Distributor") a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co., serves as the Distributor of the
Fund's shares. The Distributor is entitled to receive from the Portfolio a
distribution fee, which is accrued daily and paid quarterly, of an amount of up
to 0.25% of the Class A shares and up to 1.00%, on an annualized basis, of the
average daily net assets attributable to the Class B and Class C shares of the
Portfolio.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of each Portfolio
redeemed within one to five years following such purchase.
E. DIRECTORS' FEES: The Fund provides deferred compensation and retirement
plans for its trustees who are not officers of Van Kampen. Under the deferred
compensation plan, trustees may elect to defer all or a portion of their
compensation to a later date. Benefits under the retirement plan are payable
for a ten-year period and are based upon each trustee's years of service to the
Fund.
F. PURCHASES AND SALES: For the period ended June 30, 1998, the Portfolio made
purchases of $5,481 and sales of $607 of investment securities other than
long-term U.S. Government securities and short-term investments. There were no
purchases or sales of long-term U.S. Government securities.
G. OTHER: At June 30, 1998, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio was:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
----- ---- ------ ------- --------------
<S> <C> <C> <C> <C>
Equity Growth $5,051 $239 $(101) $138
</TABLE>
At June 30, 1998, Van Kampen Funds Inc. owned all shares of the Fund.
152
<PAGE>
VAN KAMPEN FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Van Kampen Equity Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Van Kampen Equity Growth Fund
("The Fund"), (a portfolio of the Van Kampen Series Fund Inc.) at June 30, 1998,
the results of its operations, the changes in the net assets and the financial
highlights for the period from May 29, 1998 (commencement of operations) to June
30, 1998, 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 audit. We conducted our audit 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 audit, which included confirmation of securities at June 30,
1998 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph St.
Chicago, Illinois 60601
August 11, 1998
153
<PAGE>
PART C
Van Kampen Series Fund, Inc.
Other Information
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS (included in Part A)**
The Registrant's audited financial highlights for the Funds that were
operational as of June 30, 1998 are included in Part A.
(2) FINANCIAL STATEMENTS (incorporated by reference into Part B)**
The Registrant's audited financial statements for the Funds that were
operational as of June 30, 1998, including
their report thereon, are incorporated by reference into Part B
(Statement of Additional Information) and are part of the Registrant's
June 30, 1998 Annual Report to Shareholders. The financial statements
incorporated by reference into Part B are:
1. Portfolio of Investments
2. Statements of Assets and Liabilities
3. Statements of Operations
4. Statements of Changes in Net Assets
5. Financial Highlights
6. Notes to Financial Statements
7. Report of Independent Accountants
- ------------------------
** As of June 30, 1998, the Emerging Markets Debt Fund, European Equity Fund,
Growth and Income Fund II, Japanese Equity Fund, Mid Cap Growth Fund,
Tax-Free Money Market Fund, and Global Franchise Fund were not yet
operational.
<PAGE>
(B) EXHIBITS
1 (a) Articles of Amendment and Restatement. (1)
(b) Articles Supplementary (adding Registrant's High Yield, U.S. Real
Estate and Japanese Equity Funds) to the Amended and Restated Articles
of Incorporation.(2)
(c) Articles Supplementary (adding Registrant's Government Obligations
Money Market and Tax-Free Money Market Funds) to the Amended and
Restated Articles of Incorporation.(2)
(d) Articles Supplementary (adding Registrant's Global Equity, Emerging
Market Debt, Mid Cap Growth, Equity Growth and Value Funds) to the
Amended and Restated Articles of Incorporation.(3)
(e) Articles Supplementary (changing the name of Morgan Stanley Equity
Growth to Van Kampen Equity Growth) to the Amended and Restated
Articles of Incorporation.(7)
(f) Articles Supplementary (adding Registrant's Global Franchise Fund)
to the Amended and Restated Articles of Incorporation.(7)
(g) Articles of Amendment (changing the corporate name from Morgan
Stanley Fund, Inc. to Van Kampen Series Fund, Inc.)*
(h) Articles Supplementary (Changing the name of each portfolio (except
the money market portfolio) from Morgan Stanley to Van Kampen).*
2 Amended and Restated By-Laws.(1)
3 Not applicable.
4 Form of Specimen Securities for shares of the Money Market Fund
("Money Market Specimen"). The Specimen Securities for the
remaining Funds have been omitted because they are substantially
identical to the Money Market Specimen and differ from the Money
Market Specimen only in references to the Fund and amount of
authorized shares to which the Specimen relates.(5)
5 (a) Investment Advisory Agreement between Registrant and Van Kampen
Investment Advisory Corp. and as amended by Addendum to such
Agreement.*
(b) Investment Sub-Advisory Agreement between Van Kampen Investment
Advisory Corp. and Morgan Stanley Asset Management Inc.(5)
(c) Form of Investment Sub-Advisory Agreement between Van Kampen American
Capital Investment Advisory Corp. and Miller Anderson & Sherrerd,
LLP.(5)
6 Distribution Agreement between Registrant and Van Kampen American
Capital Distributors, Inc.(3)
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase Manhattan
Bank, N.A.(4)
(b) Registrant's Global Custody Agreement with Morgan Stanley Trust
Company.(4)
(c) Registrant's Custody Agreement with PNC Bank, N.A. (with respect to
the Money Market Funds).(2)
9. (a) Administration Agreement between Registrant and Morgan Stanley Asset
Management Inc.(4) and as amended by Addendum to such Agreement. (1)
(b) Form of Assignment and Assumption Agreement (Administration Agreement)
between Van Kampen American Capital Investment Advisory Corp. and
Morgan Stanley Asset Management Inc.(5)
(c) Administration Agreement between Registrant and Miller Anderson &
Sherrerd, LLP.(3)
(d) Form of Assignment and Assumption Agreement (Administration Agreement)
between Van Kampen American Capital Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP.(5)
<PAGE>
(e) Sub-Administration Agreement between Morgan Stanley Asset Management
Inc. and The Chase Manhattan Bank.(3)
(f) Form of Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Morgan Stanley Asset Management Inc.(5)
(g) Sub-Administration Agreement between Miller Anderson & Sherrerd, LLP
and The Chase Manhattan Bank.(3)
(h) Form of Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Miller Anderson & Sherrerd, LLP.(5)
(i) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with respect to
the Asian Growth Fund and Small Cap Value Equity Fund (currently the
American Value Fund).(4)
(j) Form of Sub-Transfer Agency Agreement between Van Kampen American
Capital Investment Advisory Corp. and PFPC, Inc.(5)
(k) Sub-Transfer Agency Agreement between Morgan Stanley Asset Management
Inc. and ACCESS Investor Services, Inc.(3)
(l) Form of Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Morgan Stanley Asset Management Inc.(5)
(m) Sub-Transfer Agency Agreement between Miller Anderson & Sherrerd, LLP
and ACCESS Investor Services, Inc.(3)
(n) Form of Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Miller Anderson & Sherrerd, LLP.(5)
(o) Amended and Restated Legal Services Agreement dated May 31, 1997
including amendments one through four.*
(p) Amended Schedule for Sub-Transfer Agency Agreement between Morgan
Stanley Asset Management and ACCESS Investor Services, Inc. with
respect to Van Kampen Global Franchise Fund.*
10 Opinion of Counsel.*
11 Consent of Independent Accountants.*
12 Not applicable.
13 Purchase Agreement.(4)
14 Not applicable.
15 (a) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1 for
shares of the Money Market Fund ("Money Market Plan"). The following
Rule 12b-1 distribution plan has been omitted because it is
substantially identical to the Money Market Plan and differs from the
Money Market Plan only in references to the Fund to which the plan
relates: Government Obligations Money Market Fund.(3)
(b) Form of Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Tax-Free Money Market Fund.(3)
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A shares
(the "Class A Plan") of the Global Fixed Income Fund. The following
plans have been omitted because they are substantially identical to
the Class A Plan and differ from the Class A Plan only in references
to the Fund to which the plan relates: Asian Growth, Small Cap Value
Equity (currently the American Value Fund),
<PAGE>
Worldwide High Income, Emerging Markets, Latin American, Global Equity
Allocation, High Yield, U.S. Real Estate, International Magnum and
Aggressive Equity Funds.(3)
(d) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A shares
(the "Class A Plan") of the Japanese Equity Fund. The following plans
have been omitted because they are substantially identical to the
Class A Plan and differ from the Class A Plan only in references to
the Fund to which the plan relates: European Equity, Growth and
Income, Global Equity, Emerging Markets Debt, Mid Cap Growth, Equity
Growth, Value and Global Franchise Funds.(3)
(e) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1 for
Class B and Class C shares (the "Class B and Class C Plan") of the
Global Fixed Income, Asian Growth, Small Cap Value Equity (currently
the American Value Fund), Worldwide High Income, Emerging Markets,
Latin American, Global Equity Allocation, High Yield, U.S. Real Estate,
International Magnum, Aggressive Equity, Global Equity, Emerging
Markets Debt, Mid Cap Growth, Equity Growth, Value and Global
Franchise Funds.(3)
(f) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B and
Class C shares (the "Class B and Class C Plan") relating to the
Japanese Equity, European Equity and Growth and Income Funds.(3)
16 Schedules of Computation of Performance Information.(4)
17 (a) List of certain investment companies in response to Item 29(a).*
(b) List of officers and directors of Van Kampen Funds, Inc. in response
to Item 29(b).*
18 Registrant's Rule 18f-3 Multiple Class Plan.(3)
24 Power of Attorney.*
27 Financial data schedules for the fiscal year ended June 30, 1998.*
- --------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on October 18, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on December 31, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on October 30, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on August 29, 1997.
(6) Incorporated herein by reference to Post-Effective Amendment No. 21
to Registrant's Registration Statement on Form N-1A (File No.
33-51294 and 811-7140), as filed with the SEC via EDGAR on October
28, 1997.
(7) Incorporated herein by reference to Post-Effective Amendment 24 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on July 1, 1998.
* Filed herewith.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the
Registrant.
Item 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of September 3, 1998:
<PAGE>
As of September 3, 1998
Number of
Title of Class Record Holders
-------------- --------------
Global Equity Allocation Fund-Class A 34,073
Global Equity Allocation Fund-Class B 27,744
Global Equity Allocation Fund-Class C 8,597
Global Fixed Income Fund-Class A 245
Global Fixed Income Fund-Class B 118
Global Fixed Income Fund-Class C 175
Asian Growth Fund-Class A 12,010
Asian Growth Fund-Class B 6,218
Asian Growth Fund-Class C 7,145
Emerging Markets Fund-Class A 5,808
Emerging Markets Fund-Class B 6,424
Emerging Markets Fund-Class C 3,543
Latin American Fund-Class A 3,957
Latin American Fund-Class B 3,837
Latin American Fund-Class C 1,511
European Equity Fund-Class A 0
European Equity Fund-Class B 0
European Equity Fund-Class C 0
American Value Fund-Class A 20,283
American Value Fund-Class B 32,489
American Value Fund-Class C 9,457
Worldwide High Income Fund-Class A 4,096
Worldwide High Income Fund-Class B 8,373
Worldwide High Income Fund-Class C 3,348
Aggressive Equity Fund-Class A 7,415
Aggressive Equity Fund-Class B 16,345
Aggressive Equity Fund-Class C 2,619
Growth and Income Fund II-Class A 0
Growth and Income Fund II-Class B 0
Growth and Income Fund II-Class C 0
High Yield & Total Return Fund-Class A 365
High Yield & Total Return Fund-Class B 934
High Yield & Total Return Fund-Class C 380
U.S. Real Estate Fund-Class A 919
U.S. Real Estate Fund-Class B 1,275
U.S. Real Estate Fund-Class C 343
International Magnum Fund-Class A 6,321
International Magnum Fund-Class B 5,612
International Magnum Fund-Class C 1,020
Japanese Equity Fund-Class A 0
Japanese Equity Fund-Class B 0
Japanese Equity Fund-Class C 0
<PAGE>
Money Market Fund 463
Government Obligations Money Market Fund 16
Tax-Free Money Market Fund 0
Value Fund-Class A 467
Value Fund-Class B 567
Value Fund-Class C 667
Equity Growth Fund-Class A 877
Equity Growth Fund-Class B 1,025
Equity Growth Fund-Class C 272
Global Equity Fund-Class A 6,920
Global Equity Fund-Class B 58,349
Global Equity Fund-Class C 6,687
Emerging Markets Debt Fund-Class A 0
Emerging Markets Debt Fund-Class B 0
Emerging Markets Debt Fund-Class C 0
Mid Cap Growth Fund-Class A 0
Mid Cap Growth Fund-Class B 0
Mid Cap Growth Fund-Class C 0
Global Franchise Fund-Class A 0
Global Franchise Fund-Class B 0
Global Franchise Fund-Class C 0
ITEM 27. INDEMNIFICATION
Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, 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 (the "SEC") such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND INVESTMENT
SUB-ADVISERS
For information regarding the business of the Adviser, reference is made to
the caption "Management of the Company -- Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Management of the
Company" in Part B of this Registration Statement. 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 (SEC File No. 801-1669) filed under the Investment Advisers Act
of 1940, as amended, incorporated herein by reference.
<PAGE>
For information regarding the business of Morgan Stanley Asset Management
Inc., reference is made to the caption "Management of the Company -- Investment
Sub-Adviser" in the Prospectus constituting Part A of this Registration
Statement and "Management of the Company" in Part B of this Registration
Statement. For information as to the business, profession, vocation and
employment of a substantial nature of directors and officers of Morgan Stanley
Asset Management Inc., reference is made to the Sub-Adviser's current Form ADV
(SEC File No. 801-15757) filed under the Investment Advisers Act of 1940, as
amended, incorporated herein by reference.
For information regarding the business of Miller Anderson & Sherrerd, LLP,
reference is made to the caption "Management of the Company -- Investment
Sub-Adviser" in the Prospectus constituting Part A of this Registration
Statement and "Management of the Company" in Part B of this Registration
Statement. For information as to the business, profession, vocation and
employment of a substantial nature of directors and officers of Miller Anderson
& Sherrerd, LLP, reference is made to the Sub-Adviser's current Form ADV (SEC
File No. 801-10437) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Van Kampen Funds Inc. ("Van Kampen") is distributor for Van Kampen
Series Fund, Inc. The information required by this Item 29 with respect to
each Director and officer of Van Kampen is incorporated by reference to
Schedule A of Form BD filed by Van Kampen pursuant to the Securities and
Exchange Act of 1934 (SEC File No. 8-19412)
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required by Section 31(a) under the
Investment Company Act of 1940, as amended, and the rules promulgated thereunder
to be maintained (i) by Registrant will be maintained at its offices, located at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181 or Van Kampen Investor
Services, Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153; (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
Morgan Stanley Asset Management Inc. ("MSAM") and Miller Anderson &
Sherrerd, LLP ("MAS") have entered into separate Chase Sub-Administration
Agreements with The Chase Manhattan Bank ("Chase"), successor in interest to
United States Trust Company of New York (which is incorporated by reference to
Exhibit No. 9(b) to Pre-Effective Amendment No. 2 to Registrant's Registration
Statement and Exhibit 9(d) to Post-Effective Amendment No. 18 to Registrant's
Registration Statement, respectively). Pursuant to these agreements, Chase will
provide the following services to the Registrant: (i) managing, administering
and conducting the general business activities of the Registrant, other than
those which are contracted to third parties;
<PAGE>
(ii) providing personnel and facilities to perform the foregoing; (iii)
accounting services, including the preparation of statement and reports; (iv)
transfer agent services, including processing correspondence from
shareholders, recording transfers, issuing stock certificates and handling
checks; (v) handling dividends and distributions, including disbursing,
withholding and tax reporting; and (vi) providing office facilities,
statistical and research data, office supplies and assisting the Registrant
to comply with regulatory developments. MSAM and MAS have assigned the
respective Chase Sub-Administration Agreements to and they were assumed by
Van Kampen Investment Advisory Corp. as filed herewith as Exhibits 9(f) and
9(h), respectively.
ITEM 32. UNDERTAKINGS
1. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act
inform the Board of Directors of his, her or their desire to communicate with
other Shareholders of the Fund, the Directors will inform such Shareholder(s)
as to the approximate number of Shareholders of record and the approximate
costs of mailing or afford said Shareholders access to a list of Shareholders.
2. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant hereby
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 its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oakbrook Terrace and State of Illinois, on the
28th of September, 1998.
VAN KAMPEN SERIES FUND, INC.
By: /s/ Ronald A. Nyberg
---------------------------------------------
Ronald A. Nyberg
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURE TITLE
- --------- -----
* /s/ Wayne W. Whalen Director (Chairman)
- -----------------------------
Wayne W. Whalen
*/s/ J. Miles Branagan Director
- -----------------------------
J. Miles Branagan
*/s/ Richard M. DeMartini Director
- -----------------------------
Richard M. DeMartini
*/s/ Linda Hutton Heagy Director
- -----------------------------
Linda Hutton Heagy
*/s/ R. Craig Kennedy Director
- -----------------------------
R. Craig Kennedy
*/s/ Jack E. Nelson Director
- -----------------------------
Jack E. Nelson
*/s/ Don G. Powell Director
- -----------------------------
Don G. Powell
<PAGE>
*/s/ Phillip Rooney Director
- -----------------------------
Phillip Rooney
*/s/ Fernando Sisto Director
- -----------------------------
Fernando Sisto
*/s/ Edward C. Wood, III Chief Financial
- ----------------------------- Officer and
Edward C. Wood, III Vice President
*/s/ Dennis J. McDonnell Principal Executive
- ----------------------------- Officer and
Dennis J. McDonnell President
*By:/s/ Ronald A. Nyberg September 28, 1998
------------------------
Ronald A. Nyberg
Attorney-In-Fact
<PAGE>
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT 25 TO FORM N-1A AS
SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1998.
EX-99.1(g) Articles of Amendment (changing the corporate name from
Morgan Stanley Fund, Inc. to Van Kampen Series Fund,
Inc.)
EX-99.1(h) Articles Supplementary (changing the name of each
portfolio (except the Money Market Funds, from Morgan
Stanley to Van Kampen).
EX 99.5(a) Investment Advisory Agreement between Registrant and
Van Kampen Investment Advisory Corp. as amended by
Addendum to such Agreement.
EX 99.9(o) Amended and Restated Legal Services Agreement dated
May 31, 1997 including amendments one through four.
EX 99.9(p) Amended Schedule for Sub-Transfer Agency Agreement
between Morgan Stanley Asset Management and ACCESS
Investor Services, Inc. with respect to Van Kampen
Global Franchise Fund.
EX 99.10 Opinion of Counsel
EX 99.11 Consent of Independent Accountants
EX 99.17 (a) List of certain investment companies in response to
Item 29(a)
(b) List of officers and directors of Van Kampen Funds
Inc. in response to Item 29(b).
EX 99.24 Power of Attorney
EX 99.27 Financial Data Schedules for the fiscal year ended
June 30, 1998
<PAGE>
ARTICLES OF AMENDMENT
Morgan Stanley Fund, Inc., a Maryland Corporation hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
The charter of the corporation is hereby amended as follows: To change the
name of the corporation to Van Kampen Series Fund, Inc.
This amendment of the charter of the corporation has been approved by:
Directors approved name change May 27, 1998
We the undersigned President and Secretary swear under penalties of perjury
that the foregoing is a corporate act.
/s/ Ronald A. Nyberg /s/ Peter W. Hegel
- ---------------------------------- --------------------------------------
SECRETARY VICE PRESIDENT
MAIL TO STATE DEPARTMENT OF ASSESSMENTS & TAXATION
301 WEST PRESTON STREET, ROOM 809
BALTIMORE, MD 21201
PHONE: 401-767-1350
Date: July 14, 1998
---------------
<PAGE>
VAN KAMPEN SERIES FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
OF THE ARTICLES OF INCORPORATION
VAN KAMPEN SERIES FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 of the Maryland General Corporation Law ("MGCL"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation at a meeting duly
convened and held on May 27, 1998 adopted a resolution to change the names of
certain portfolios of the Corporation listed below:
<TABLE>
<CAPTION>
Name of Class Number of Shares of Common
- ------------- Stock Classified and Allocated
------------------------------
<S> <C>
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
Class C 375,000,000 shares
Morgan Stanley American Value Fund
<PAGE>
Class A 375,000,000 shares
Morgan Stanley American Value Fund
Class B 375,000,000 shares
Morgan Stanley American Value Fund
Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
Class C 375,000,000 shares
Morgan Stanley Latin American Fund
Class A 375,000,000 shares
Morgan Stanley Latin American Fund
Class B 375,000,000 shares
Morgan Stanley Latin American Fund
Class C 375,000,000 shares
Morgan Stanley European Equity Fund
Class A 375,000,000 shares
Morgan Stanley European Equity Fund
Class B 375,000,000 shares
Morgan Stanley European Equity Fund
Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
<PAGE>
Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
Class C 375,000,000 shares
Morgan Stanley High Yield Fund
Class A 375,000,000 shares
Morgan Stanley High Yield Fund
Class B 375,000,000 shares
Morgan Stanley High Yield Fund
Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
Class C 375,000,000 shares
Morgan Stanley Global Equity Fund
Class A 375,000,000 shares
Morgan Stanley Global Equity Fund
Class B 375,000,000 shares
Morgan Stanley Global Equity Fund
Class C 375,000,000 shares
Morgan Stanley Emerging Markets Debt
Fund - Class A 375,000,000 shares
Morgan Stanley Emerging Markets Debt
Fund - Class B 375,000,000 shares
Morgan Stanley Emerging Markets Debt
Fund - Class C 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
Class A 375,000,000 shares
<PAGE>
Morgan Stanley Mid Cap Growth Fund
Class B 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
Class C 375,000,000 shares
Morgan Stanley Value Fund
Class A 375,000,000 shares
Morgan Stanley Value Fund
Class B 375,000,000 shares
Morgan Stanley Value Fund
Class C 375,000,000 shares
</TABLE>
To the following new names for each listed fund:
<TABLE>
<CAPTION>
Name of Class Number of Shares of Common
- ------------- Stock Classified and Allocated
------------------------------
<S> <C>
Van Kampen Global Equity
Allocation Fund - Class A 375,000,000 shares
Van Kampen Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Van Kampen Global Equity
Allocation Fund - Class C 375,000,000 shares
Van Kampen Global Fixed Income
Fund - Class A 375,000,000 shares
Van Kampen Global Fixed Income
Fund - Class B 375,000,000 shares
Van Kampen Global Fixed Income
Fund - Class C 375,000,000 shares
Van Kampen Asian Growth Fund
Class A 375,000,000 shares
Van Kampen Asian Growth Fund
Class B 375,000,000 shares
Van Kampen Asian Growth Fund
Class C 375,000,000 shares
Van Kampen American Value Fund
Class A 375,000,000 shares
Van Kampen American Value Fund
Class B 375,000,000 shares
Van Kampen American Value Fund
Class C 375,000,000 shares
<PAGE>
Van Kampen Worldwide High Income Fund
Class A 375,000,000 shares
Van Kampen Worldwide High Income Fund
Class B 375,000,000 shares
Van Kampen Worldwide High Income Fund
Class C 375,000,000 shares
Van Kampen Emerging Markets Fund
Class A 375,000,000 shares
Van Kampen Emerging Markets Fund
Class B 375,000,000 shares
Van Kampen Emerging Markets Fund
Class C 375,000,000 shares
Van Kampen Latin American Fund
Class A 375,000,000 shares
Van Kampen Latin American Fund
Class B 375,000,000 shares
Van Kampen Latin American Fund
Class C 375,000,000 shares
Van Kampen European Equity Fund
Class A 375,000,000 shares
Van Kampen European Equity Fund
Class B 375,000,000 shares
Van Kampen European Equity Fund
Class C 375,000,000 shares
Van Kampen Growth and Income
Fund II Class A 375,000,000 shares
Van Kampen Growth and Income
Fund II Class B 375,000,000 shares
Van Kampen Growth and Income
Fund II Class C 375,000,000 shares
Van Kampen International Magnum Fund
Class A 375,000,000 shares
Van Kampen International Magnum Fund
Class B 375,000,000 shares
Van Kampen International Magnum Fund
Class C 375,000,000 shares
Van Kampen Aggressive Equity Fund
Class A 375,000,000 shares
Van Kampen Aggressive Equity Fund
Class B 375,000,000 shares
<PAGE>
Van Kampen Aggressive Equity Fund
Class C 375,000,000 shares
Van Kampen High Yield & Total
Return Fund Class A 375,000,000 shares
Van Kampen High Yield & Total
Return Fund Class B 375,000,000 shares
Van Kampen High Yield & Total
Return Fund Class C 375,000,000 shares
Van Kampen U.S. Real Estate Fund
Class A 375,000,000 shares
Van Kampen U.S. Real Estate Fund
Class B 375,000,000 shares
Van Kampen U.S. Real Estate Fund
Class C 375,000,000 shares
Van Kampen Japanese Equity Fund
Class A 375,000,000 shares
Van Kampen Japanese Equity Fund
Class B 375,000,000 shares
Van Kampen Japanese Equity Fund
Class C 375,000,000 shares
Van Kampen Global Equity Fund
Class A 375,000,000 shares
Van Kampen Global Equity Fund
Class B 375,000,000 shares
Van Kampen Global Equity Fund
Class C 375,000,000 shares
Van Kampen Emerging Markets Debt
Fund - Class A 375,000,000 shares
Van Kampen Emerging Markets Debt
Fund - Class B 375,000,000 shares
Van Kampen Emerging Markets Debt
Fund - Class C 375,000,000 shares
Van Kampen Mid Cap Growth Fund
Class A 375,000,000 shares
Van Kampen Mid Cap Growth Fund
Class B 375,000,000 shares
Van Kampen Mid Cap Growth Fund
Class C 375,000,000 shares
<PAGE>
Van Kampen Value Fund
Class A 375,000,000 shares
Van Kampen Value Fund
Class B 375,000,000 shares
Van Kampen Value Fund
Class C 375,000,000 shares
</TABLE>
THIRD, Such shares have been duly authorized and classified by the Board of
Directors pursuant to authority and power contained in Section 2-105(c) of the
MGCL and the Corporation's Articles of Amendment and Restatement of the Amended
Articles of Incorporation.
FOURTH, The description of the shares designated and classified, as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement of the Amended Articles of Incorporation and has not changed in
connection with these Articles Supplementary to the Articles of Amendment and
Restatement of the Amended Articles of Incorporation.
IN WITNESS WHEREOF, VAN KAMPEN SERIES FUND, INC. has caused these presents
to be signed in its name and on its behalf by its Vice President and attested by
its Assistant Secretary on this 10th day of July, 1998.
VAN KAMPEN SERIES FUND, INC
/s/ Ronald A. Nyberg
By:
------------------------------
Ronald A.Nyberg
Vice President
/s/ Weston B. Wetherell
Attest:
-------------------------
Weston B. Wetherell
Assistant Secretary
<PAGE>
The undersigned, Vice President of Van Kampen Series Fund, Inc., who executed on
behalf of said corporation the foregoing Articles Supplementary to the Articcles
of Amendment and Restatement of which this certificate is made a part, hereby
acknowledges, in the name an on behalf of said corporation, the foregoing
Articles Supplementary to the Articles of Amendment and Restatement to be
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Ronald A. Nyberg
By:
------------------------------
Ronald A. Nyberg
<PAGE>
INVESTMENT ADVISORY AGREEMENT
OF THE VAN KAMPEN SERIES FUND, INC.
THIS INVESTMENT ADVISORY AGREEMENT, dated as of July 30, 1998 (the
"Agreement"), by and between VAN KAMPEN SERIES FUND, INC., a Maryland
corporation (the "Company"), on behalf of each of its investment portfolios
identified at Schedule A (the "Funds") and VAN KAMPEN INVESTMENT ADVISORY
CORP. (the "Adviser"), a Delaware corporation.
1. (a) RETENTION OF ADVISER BY THE COMPANY. Subject to the terms and
conditions set forth herein, the Company hereby employs the Adviser to act as
the investment adviser for and to manage the investment and reinvestment of the
assets of the Funds in accordance with each Fund's investment objective,
policies and limitations, and to administer its affairs to the extent requested
by, and subject to the review and supervision of, the Board of Directors of the
Company for the period and upon the terms herein set forth. The investment of
funds shall be subject to all applicable restrictions of applicable law and of
the Articles Incorporation and By-Laws of the Company, and resolutions of the
Board of Directors of the Company as may from time to time be in force and
delivered or made available to the Adviser. The Adviser may appoint a
sub-adviser for one or more Funds to perform any or all services provided for in
this Agreement, provided that such sub-adviser is appointed pursuant to a
written agreement between the Adviser and sub-adviser and such agreement is
approved by a majority of the Company's Directors who are not "interested
persons" of the Company, the Adviser, or the sub-adviser as defined in the
Investment Company Act of 1940, as amended, (the "1940 Act") and by a majority
of the outstanding voting securities of each appropriate Fund in accordance with
the 1940 Act. The Adviser shall be solely responsible for paying any such
sub-adviser for its services.
(b) ADVISER'S ACCEPTANCE OF EMPLOYMENT. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Funds to purchase, hold or sell and the
selection of brokers through whom the Funds' portfolio transactions are
executed, in accordance with the policies adopted by the Company's Board of
Directors), to administer the business affairs of the Company, to furnish
offices and necessary facilities and equipment to the Company, to provide
administrative services for the Company, to render periodic reports to the Board
of Directors of the Company, and to permit any of its officers or employees to
serve without compensation as Directors or officers of the Company if selected
to such positions.
(c) ESSENTIAL PERSONNEL. For a period of one year commencing on the
effective date of this agreement, the Adviser and the Company agree that the
retention of (i) the chief executive officer, president, chief financial officer
and secretary of the Adviser, (ii) each director, officer and employee of the
Adviser or any of its Affiliates (as defined in the 1940 Act) who serves as an
officer of the Company (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 Company and the Company'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 Directors of the Company 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 Directors of
the Company in a timely manner.
(d) INDEPENDENT CONTRACTOR. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Company in any way or otherwise be deemed as agent of the Company.
(e) NON-EXCLUSIVE AGREEMENT. The services of the Adviser to the Company
and the Funds under this Agreement are not to be deemed exclusive, and the
Adviser shall be free to render similar
<PAGE>
services or other services to others so long as its services hereunder are not
impaired thereby.
2. (a) FEE. For the services and facilities described in Section 1, the
Company will accrue daily and pay to the Adviser at the end of each calendar
month an investment management fee computed based on a fee rate (expressed as
percentage per annum), applied to the average daily net assets of each Fund as
set forth at Schedule A.
(b) DETERMINATION OF NET ASSET VALUE. The net asset value of the Funds
shall be calculated as of 12:00 noon (Eastern time) for each Fund that is a
money market fund and as of 4:00 p.m. (Eastern time) for the non-money market
funds on each day the Exchange is open for trading or such other time or times
as the Directors may determine in accordance with the provisions of applicable
law and the Articles of Incorporation and By-Laws of the Company, and
resolutions of the Board of Directors of the Company as from time to time in
force. For the purposes of the foregoing computations, on each such day when
net asset value is not calculated, the net asset value of a share a Fund shall
be deemed to be the net asset value of such share as of the close of business of
the last day on which such calculation was made.
(c) PRORATION. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in effect
during such month and year, respectively.
3. EXPENSES. In addition to the fee of the Adviser, the Company shall
assume and pay any expenses for services rendered by a custodian for the
safekeeping of the Company's securities or other property, for keeping its books
of account, for any other charges of the custodian and for calculating the net
asset value of the Funds as provided above. The Adviser shall not be required
to pay, and the Company shall assume and pay, the charges and expenses of its
operations, including compensation of the Directors (other than those who are
interested persons of the Adviser and other than those who are interested
persons of the Company's distributor but not of the Adviser, if the distributor
has agreed to pay such compensation), charges and expenses of independent
accountants, of legal counsel and of any transfer or dividend disbursing agent,
costs of acquiring and disposing of portfolio securities, interest (if any) on
obligations incurred by the Company, costs of share certificates, membership
dues in the Investment Company Institute or any similar organization, costs of
reports and notices to shareholders, costs of registering shares of the Company
under the federal securities laws, miscellaneous expenses and all taxes and fees
to federal, state or other governmental agencies on account of the registration
of securities issued by the Company, filing of corporate documents or otherwise.
The Company shall not pay or incur any obligation for any management or
administrative expenses for which the Company intends to seek reimbursement from
the Adviser without first obtaining the written approval of the Adviser. The
Adviser shall arrange, if desired by the Company, for officers or employees of
the Adviser to serve, without compensation from the Company, as directors,
officers or agents of the Company if duly elected or appointed to such positions
and subject to their individual consent and to any limitations imposed by the
law.
4. INTERESTED PERSONS. Subject to applicable statutes and regulations, it
is understood that directors, officers, shareholders and agents of the Company
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents of
the Adviser may be interested in the Company as directors, officers,
shareholders, agents or otherwise.
5. LIABILITY. The Adviser shall not be liable for any error of judgment
or of law, or for any loss suffered by the Company in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) TERM. This Agreement shall become effective on the date hereof
and shall remain in full force until July 2, 1999 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only for so long as such continuance is specifically approved at
<PAGE>
least annually, in the manner required by the 1940 Act.
(b) TERMINATION. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Company or by the Adviser on sixty (60) days'
written notice to the other party. The Company may effect termination of this
Agreement with respect to a Fund by action of the Board of Directors or by vote
of a majority of the outstanding shares of common stock of the appropriate Fund,
accompanied by appropriate notice. This Agreement may be terminated at any time
without the payment of any penalty and without advance notice by the Board of
Directors or by vote of a majority of the outstanding shares of the Company (or
with respect to a Fund, by a majority of the outstanding shares of that Fund) in
the event that it shall have been established by a court of competent
jurisdiction that the Adviser or any officer or director of the Adviser has
taken any action which results in a breach of the covenants of the Adviser set
forth herein.
(c) PAYMENT UPON TERMINATION. Termination of this Agreement shall not
affect the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
thereby be affected.
8. NOTICES. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
10. GOVERNING LAW. 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.
11. NAME. 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 Directors.
12. MISCELLANEOUS PROVISIONS. The execution of this Agreement has been
authorized by the Company's Directors and by each Fund's shareholders. This
Agreement is executed on behalf of the Company or the Directors of the Company
as Directors and not individually and the obligations of this Agreement are not
binding upon any of the Directors, officers or shareholders of the Company
individually but are binding only upon the assets and property of the Company.
The Articles of Incorporation of the Company is on file with the Department of
Assessments and Taxation of the State of Maryland. No Fund shall be liable
under this Agreement for the obligations of any other Fund.
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 SERIES FUND, INC. VAN KAMPEN INVESTMENT ADVISORY CORP.
By:/s/ Ronald A. Nyberg
Name:Ronald A. Nyberg By:/s/ Dennis J. McDonnell
Title:Vice President, Secretary Name:Dennis J. McDonnell
Title:President, Chief Operating Officer
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Fund* Annual Percentage Rate
- ----- ----------------------
<S> <C>
Emerging Markets Debt Fund 1.25%
Global Fixed Income Fund 0.75
High Yield Fund 0.75
Worldwide High Income Fund 0.75
Asian Growth Fund 1.00
Emerging Markets Fund 1.25
European Equity Fund 1.00
Global Equity Allocation Fund 1.00
Global Equity Fund 1.00
International Magnum Fund 0.80
Japanese Equity Fund 1.00
Latin American Fund 1.25
Aggressive Equity Fund 0.90
American Value Fund 0.85
Equity Growth Fund 0.80
Growth and Income Fund 1.00
Mid Cap Growth Fund 0.75
Value Fund 0.80
U.S. Real Estate Fund 1.00
Government Obligations Money
Market Fund 0.45 on assets up to $250 million; 0.40 on
assets above $250 million up to $500
million; and 0.35 on assets exceeding
$500 million
Money Market Fund 0.45 on assets up to $250 million; 0.40 on
assets above $250 million up to $500
million; and 0.35 on assets exceeding
$500 million
Tax-Free Money Market Fund 0.45 on assets up to $250 million; 0.40 on
assets above $250 million up to $500
million; and 0.35 on assets exceeding
$500 million
Global Franchise Fund 1.00 on assets up to $500 million; 0.950 on
the next $500 million; and 0.900
thereafter
</TABLE>
- ------------
* For ease of reference the words "Van Kampen," which begin the name of each
Fund (except Money Market Funds, which begin with the name "Morgan Stanley" )
have been omitted.
<PAGE>
AMENDMENT ONE
TO THE
AMENDED AND RESTATED LEGAL SERVICES AGREEMENT
DATED MAY 31, 1997
THIS AMENDMENT ONE to the Amended and Restated Legal Services Agreement
dated May 31, 1997 by and between the parties as set forth in Schedule 1,
attached hereto and incorporated by reference and VAN KAMPEN AMERICAN CAPITAL,
INC.
W I T N E S S E T H
WHEREAS, Morgan Stanley Fund, Inc. being an open-end management investment
company as that term is defined in the Investment Company Act of 1940, as
amended, wishes to become a party to the Agreement; and
WHEREAS, the original parties desire to add the aforementioned additional
entity as a party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule 1 of
the Agreement be amended to add Morgan Stanley Fund, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment One to be
executed this 31st day of May, 1997.
ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO
By: /s/ RONALD A. NYBERG
--------------------------
Ronald A. Nyberg
Executive Vice President
VAN KAMPEN AMERICAN CAPITAL, INC.
By: /s/ DENNIS J. McDONNELL
--------------------------
Dennis J. McDonnell
Executive Vice President
MORGAN STANLEY FUND, INC.
By: /s/ RONALD A. NYBERG
-------------------------
Ronald A. Nyberg
Vice President, Secretary
2
<PAGE>
SCHEDULE 1
1. VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
series, Van Kampen American Capital U.S. Government Fund
2. VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series, 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 New York Tax Free Income Fund,
Van Kampen American Capital New Jersey Tax Free Income Fund, Van Kampen
American Capital Florida Insured Tax Free Income Fund, Van Kampen
American Capital California Tax Free Income Fund, Van Kampen American
Capital Michigan Tax Free Income Fund, Van Kampen American Capital
Missouri Tax Free Income Fund and Van Kampen American Capital Ohio Tax
Free Income Fund
3. VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van
Kampen American Capital High Yield Fund, Van Kampen American Capital
Short-Term Global Income Fund and Van Kampen American Capital Strategic
Income Fund
4. VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
Kampen American Capital Utility Fund, Van Kampen American Capital Value
Fund, Van Kampen American Capital Growth Fund, Van Kampen American
Capital Great American Companies Fund, Van Kampen American Capital
Prospector Fund and Van Kampen American Capital Aggressive Growth Fund
5. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
6. VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
7. VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
12. VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
13. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
14. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
15. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
16. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
17. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
18. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
19. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
20. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
3
<PAGE>
22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS
23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
MUNICIPALS
24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS
25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS
26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS
27. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
28. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
30. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
31. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
32. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
33. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
34. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
35. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
36. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
37. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
38. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
39. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
40. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
41. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
42. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts, Explorer
Institutional Active Core Fund and Explorer Institutional Limited
Duration Fund
4
<PAGE>
43. MORGAN STANLEY FUND INC., on behalf of its series
Morgan Stanley Emerging Markets Debt Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley High Yield Fund
Morgan Stanley Worldwide High Income Fund
Morgan Stanley American Value Fund
Morgan Stanley Aggressive Equity Fund
Morgan Stanley U.S. Real Estate Fund
Morgan Stanley Equity Growth Fund
Morgan Stanley Midcap Growth Fund
Morgan Stanley Value Fund
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Equity Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Latin American Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Japanese Equity Fund
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Morgan Stanley Government Obligations Money Market Fund.
5
<PAGE>
AMENDMENT TWO
TO THE
AMENDED AND RESTATED LEGAL SERVICES AGREEMENT
DATED MAY 31, 1997
THIS AMENDMENT TWO to the Amended and Restated Legal Services Agreement
dated May 31, 1997 by and between the parties as set forth in Schedule 1,
attached hereto and incorporated by reference and VAN KAMPEN AMERICAN CAPITAL,
INC.
W I T N E S S E T H
WHEREAS, Van Kampen American Capital Senior Floating Rate Fund, being a
closed-end registered investment company as that term is defined in the
Investment Company Act of 1940, as amended, wishes to become a party to the
Agreement; and
WHEREAS, the original parties desire to add the aforementioned additional
entity as a party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule 1 of
the Agreement be amended to add Van Kampen American Capital Senior Floating Rate
Fund
1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment Two to be
executed this 19th day of December, 1997.
ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO
By: /s/ RONALD A. NYBERG
--------------------------
Ronald A. Nyberg
Executive Vice President
VAN KAMPEN AMERICAN CAPITAL, INC.
By: /s/ DENNIS J. McDONNELL
--------------------------
Dennis J. McDonnell
Executive Vice President
2
<PAGE>
SCHEDULE 1
1. VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
series, Van Kampen American Capital U.S. Government Fund
2. VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series, 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 New York Tax Free Income Fund,
Van Kampen American Capital New Jersey Tax Free Income Fund, Van Kampen
American Capital Florida Insured Tax Free Income Fund, Van Kampen
American Capital California Tax Free Income Fund, Van Kampen American
Capital Michigan Tax Free Income Fund, Van Kampen American Capital
Missouri Tax Free Income Fund and Van Kampen American Capital Ohio Tax
Free Income Fund
3. VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van Kampen
American Capital High Yield Fund, Van Kampen American Capital Short-Term
Global Income Fund and Van Kampen American Capital Strategic Income Fund
4. VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
Kampen American Capital Utility Fund, Van Kampen American Capital Value
Fund, Van Kampen American Capital Growth Fund, Van Kampen American
Capital Great American Companies Fund, Van Kampen American Capital
Prospector Fund and Van Kampen American Capital Aggressive Growth Fund
5. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
6. VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
7. VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
12. VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
13. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
14. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
15. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
16. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
17. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
18. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
19. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
3
<PAGE>
20. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS
23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
MUNICIPALS
24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS
25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS
26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS
27. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
28. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
30. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
31. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
32. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
33. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
34. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
35. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
36. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
37. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
38. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
39. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
40. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
41. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
42. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts, Explorer
Institutional Active Core Fund and Explorer Institutional Limited
Duration Fund
43. VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND
4
<PAGE>
44. MORGAN STANLEY FUND INC., on behalf of its series
Morgan Stanley Emerging Markets Debt Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley High Yield Fund
Morgan Stanley Worldwide High Income Fund
Morgan Stanley American Value Fund
Morgan Stanley Aggressive Equity Fund
Morgan Stanley U.S. Real Estate Fund
Morgan Stanley Equity Growth Fund
Morgan Stanley Midcap Growth Fund
Morgan Stanley Value Fund
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Equity Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Latin American Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Japanese Equity Fund
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Morgan Stanley Government Obligations Money Market Fund.
5
<PAGE>
AMENDMENT THREE
TO THE
AMENDED AND RESTATED LEGAL SERVICES AGREEMENT
DATED MAY 31, 1997
THIS AMENDMENT THREE to the Amended and Restated Legal Services Agreement
dated May 31, 1997 by and between the parties as set forth in Schedule 1,
attached hereto and incorporated by reference and VAN KAMPEN AMERICAN CAPITAL,
INC.
W I T N E S S E T H
WHEREAS, Van Kampen American Capital Senior Income Trust, being a
closed-end registered investment company as that term is defined in the
Investment Company Act of 1940, as amended, wishes to become a party to the
Agreement; and
WHEREAS, the original parties desire to add the aforementioned additional
entity as a party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule 1 of
the Agreement be amended to add Van Kampen American Capital Senior Income Trust.
1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment Three to be
executed this 22nd day of April, 1998.
ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO
By: /s/ RONALD A. NYBERG
--------------------------
Ronald A. Nyberg
Executive Vice President
VAN KAMPEN AMERICAN CAPITAL, INC.
By: /s/ DENNIS J. McDONNELL
--------------------------
Dennis J. McDonnell
Executive Vice President
2
<PAGE>
SCHEDULE 1
1. VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
series, Van Kampen American Capital U.S. Government Fund
2. VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series, 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 New York Tax Free Income Fund,
Van Kampen American Capital New Jersey Tax Free Income Fund, Van Kampen
American Capital Florida Insured Tax Free Income Fund, Van Kampen
American Capital California Tax Free Income Fund, Van Kampen American
Capital Michigan Tax Free Income Fund, Van Kampen American Capital
Missouri Tax Free Income Fund and Van Kampen American Capital Ohio Tax
Free Income Fund
3. VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van Kampen
American Capital High Yield Fund, Van Kampen American Capital Short-Term
Global Income Fund and Van Kampen American Capital Strategic Income Fund
4. VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
Kampen American Capital Utility Fund, Van Kampen American Capital Value
Fund, Van Kampen American Capital Growth Fund, Van Kampen American
Capital Great American Companies Fund, Van Kampen American Capital
Prospector Fund and Van Kampen American Capital Aggressive Growth Fund
5. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
6. VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
7. VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
12. VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
13. VAN KAMPEN AMERICAN CAPITAL SENIOR FLOATING RATE FUND
14. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
15. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
16. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
17. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
18. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
19. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
20. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
3
<PAGE>
22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS
24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
MUNICIPALS
25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS
26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS
27. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS
28. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
30. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
31. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
32. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
33. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
34. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
35. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
36. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
37. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
38. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
39. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
40. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
41. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
42. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
43. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts, Explorer
Institutional Active Core Fund and Explorer Institutional Limited
Duration Fund
44. VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST
4
<PAGE>
45. MORGAN STANLEY FUND INC., on behalf of its series
Morgan Stanley Emerging Markets Debt Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley High Yield Fund
Morgan Stanley Worldwide High Income Fund
Morgan Stanley American Value Fund
Morgan Stanley Aggressive Equity Fund
Morgan Stanley U.S. Real Estate Fund
Morgan Stanley Equity Growth Fund
Morgan Stanley Midcap Growth Fund
Morgan Stanley Value Fund
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Equity Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Latin American Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Japanese Equity Fund
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Morgan Stanley Government Obligations Money Market Fund.
5
<PAGE>
AMENDMENT FOUR
TO THE
AMENDED AND RESTATED LEGAL SERVICES AGREEMENT
DATED MAY 31, 1997
THIS AMENDMENT FOUR to the Amended and Restated Legal Services Agreement
dated May 31, 1997 by and between the parties as set forth in Schedule 1,
attached hereto and incorporated by reference and VAN KAMPEN INVESTMENTS INC.
W I T N E S S E T H
WHEREAS, Van Kampen Global Franchise Fund, being an open-end management
investment company as that term is defined in the Investment Company Act of
1940, as amended, wishes to become a party to the Agreement; and
WHEREAS, the original parties desire to add the aforementioned additional
entity as a party to the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Schedule 1 of
the Agreement be amended to add Van Kampen Global Franchise Fund.
1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment Four to be
executed this 30th day of July, 1998.
ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO
By: /s/ RONALD A. NYBERG
--------------------------
Ronald A. Nyberg
Executive Vice President
VAN KAMPEN AMERICAN CAPITAL, INC.
By: /s/ DENNIS J. McDONNELL
--------------------------
Dennis J. McDonnell
Executive Vice President
2
<PAGE>
SCHEDULE 1
1. VAN KAMPEN U.S. GOVERNMENT TRUST, on behalf of its series, Van Kampen
U.S. Government Fund
2. VAN KAMPEN TAX FREE TRUST, on behalf of its series, Van Kampen Insured
Tax Free Income Fund, Van Kampen Tax Free High Income Fund, Van Kampen
California Insured Tax Free Fund, Van Kampen Municipal Income Fund, Van
Kampen Intermediate Term Municipal Income Fund, Van Kampen New York Tax
Free Income Fund, Van Kampen New Jersey Tax Free Income Fund, Van Kampen
Florida Insured Tax Free Income Fund, Van Kampen California Tax Free
Income Fund, Van Kampen Michigan Tax Free Income Fund, Van Kampen
Missouri Tax Free Income Fund and Van Kampen Ohio Tax Free Income Fund
3. VAN KAMPEN TRUST, on behalf of its series, Van Kampen High Yield Fund,
Van Kampen Short-Term Global Income Fund and Van Kampen Strategic Income
Fund
4. VAN KAMPEN EQUITY TRUST, on behalf of its series, Van Kampen Utility
Fund, Van Kampen American Capital Value Fund, Van Kampen Growth Fund,
Van Kampen Great American Companies Fund, Van Kampen Prospector Fund and
Van Kampen Aggressive Growth Fund
5. VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
6. VAN KAMPEN TAX FREE MONEY FUND
7. VAN KAMPEN FOREIGN SECURITIES FUND
8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
12. VAN KAMPEN PRIME RATE INCOME TRUST
13. VAN KAMPEN SENIOR FLOATING RATE FUND
14. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
15. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
16. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
17. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
18. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
19. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
20. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS
24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
MUNICIPALS
3
<PAGE>
25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS
26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS
27. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS
28. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
30. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
31. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
32. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
33. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
34. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
35. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
36. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
37. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
38. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
39. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
40. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
41. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
42. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
43. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts, Explorer
Institutional Active Core Fund and Explorer Institutional Limited
Duration Fund
44. VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST
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45. VAN KAMPEN SERIES FUND, INC., on behalf of its series
Van Kampen Emerging Markets Debt Fund
Van Kampen Global Fixed Income Fund
Van Kampen High Yield & Total Return Fund
Van Kampen Worldwide High Income Fund
Van Kampen American Value Fund
Van Kampen Aggressive Equity Fund
Van Kampen U.S. Real Estate Fund
Van Kampen Equity Growth Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Value Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Fund
Van Kampen Latin American Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Morgan Stanley Government Obligations Money Market Fund
Van Kampen Growth & Income Fund II
Van Kampen Global Franchise Fund
5
<PAGE>
AMENDED AND RESTATED
LEGAL SERVICES AGREEMENT
THIS AGREEMENT, dated as of May 31, 1997, by and between the parties as
set forth in Schedule 1, attached hereto and incorporated by reference
(designated collectively hereafter as the "Funds"), and VAN KAMPEN AMERICAN
CAPITAL, INC., a Delaware corporation ("Van Kampen").
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, Van Kampen has the capability of providing certain legal
services to the Funds; and
WHEREAS, each Fund desires to utilize Van Kampen in the provision of
such legal services; and
WHEREAS, Van Kampen intends to increase 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 VAN KAMPEN. As agent, Van Kampen shall provide each of
the Funds the legal services (the "Legal Services") as set forth in Paragraph
2 of this Agreement. Van Kampen accepts such appointments and agrees to
furnish the Legal Services in return for the compensation provided in
Paragraph 3 of this Agreement.
2. LEGAL SERVICES TO BE PROVIDED. Van Kampen will provide to the Funds the
following legal services, including without limitation: accurate maintenance
of the Funds' Corporate Minute books and records, preparation and oversight
of each Fund's regulatory reports and other information provided to
shareholders as well as responding to day-to-day legal issues on behalf of
the Funds. Van Kampen shall hire persons (collectively the "Legal Services
Group") as needed to provide such Legal Services and in such numbers as may
be agreed from time to time.
3. EXPENSES AND REIMBURSEMENT. The Legal Services expenses (the "Legal
Services Expenses") for which Van Kampen may be reimbursed are salary and
salary related benefits, including but not limited to bonuses, group
insurance and other regular wages paid to the personnel of the Legal Services
Group, as well as overhead and expenses related to office space and necessary
equipment. The Legal Services Expenses will be paid by Van Kampen and
reimbursed by the Funds. Van Kampen will
<PAGE>
tender to each Fund a monthly invoice as of the last business day of each
month which shall certify the total Legal Service Expenses expended. Except
as provided herein, Van Kampen will receive no other compensation in
connection with Legal Services rendered in accordance with this Agreement,
and Van Kampen will be responsible for all other expenses relating to the
providing of Legal Services.
4. PAYMENT FOR LEGAL SERVICES EXPENSE AMONG THE FUNDS. One half (50%) of
the Legal Services Expenses incurred under the Agreement shall be
attributable equally to each respective Fund and all other funds to whom Van
Kampen provides Legal Services, including all other Funds for which Van
Kampen serves as investment adviser and distributor. Van Kampen shall assume
the costs of Legal Services for the Non-Participating Funds for which
reimbursement is not received. The remaining one half (50%) of the Legal
Services Expenses shall be in allocated (a) in the event services are
attributable to specific funds (including the Non-Participating Funds) based
on such specific time allocations; and (b) in the event services are
attributable only to types of funds (i.e. closed-end and open-end funds), the
relative amount of time spent on each type of fund and then further allocated
between funds of that type on the basis of relative net assets at the end of
the period.
5. MAINTENANCE OF RECORDS. All records maintained by Van Kampen in
connection with the performance of its duties under this Agreement will
remain the property of each respective Fund and will be preserved by Van
Kampen 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 VAN KAMPEN. Van Kampen 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 negligence or misconduct on the part of Van Kampen,
its agents or contractors.
7. INDEMNIFICATION BY FUNDS. Each Fund will indemnify and hold Van Kampen
harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Van Kampen resulting from (a) any
claim, demand, action or suit in connection with Van Kampen's acceptance of
this Agreement; (b) an action or omission by Van Kampen in the performance of
its duties hereunder; (c) Van Kampen's acting upon instructions believed by
it to have been executed by a duly authorized officer of the Fund; or (d) Van
Kampen's acting upon information provided by the Fund in form and under
policies agreed to by Van Kampen and the Fund. Van Kampen shall not be
entitled to such indemnification in respect of action or omissions
constituting negligence or willful misconduct of Van Kampen or its agents or
contractors. Prior to admitting any claim against it which may be subject to
this indemnification, Van Kampen shall give the Fund reasonable opportunity
to defend against said claim on its own name or in the name of Van Kampen.
<PAGE>
8. INDEMNIFICATION BY VAN KAMPEN. Van Kampen 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 Van Kampen's failure to
comply with the terms of this Agreement or which arises out of the negligence
or willful misconduct of Van Kampen or its agents or contractors; provided,
that such negligence or misconduct is not attributable to the Funds, their
agents or contractors. Prior to admitting any claim against it which may be
subject to this indemnification, the Fund shall give Van Kampen reasonable
opportunity to defend against said claim in its own name or in the name of
such Fund.
9. FURTHER ASSURANCES. Each party agrees to perform such further acts and
execute such further documents as 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 Van
Kampen (including Van Kampen'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, 1997,
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. The Agreement may be
modified or amended from time to time by mutual agreement between the and
shall likewise reimburse Van Kampen 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 which Van Kampen, any subsidiary or affiliate serves as
investment advisor or distributor.
12. ASSIGNMENT. Any interest of Van Kampen 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 Fund. This
Agreement shall automatically and immediately terminate in the event of its
assignment without the prior written consent of the Fund.
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 the address of
Van Kampen. for this purpose is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, Attention: General Counsel.
<PAGE>
14. PERSONAL LIABILITY. As provided for in the Declaration of Trust of the
various Funds, under which the Funds are organized as unincorporated trusts
under the laws of the State of Delaware, Massachusetts or Pennsylvania, as
the case may be, the shareholders, trustees, officers, employees and other
agents of the Fund shall not personally be bound by or liable for the matters
set forth hereunder, 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, Van Kampen 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 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 the 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 effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO
By: /s/ RONALD A. NYBERG
--------------------------
Ronald A. Nyberg
Vice President & Secretary
VAN KAMPEN AMERICAN CAPITAL, INC.
By: /s/ DENNIS J. McDONNELL
--------------------------
Dennis J. McDonnell
Executive Vice President
<PAGE>
SCHEDULE 1
1. VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
series, Van Kampen American Capital U.S. Government Fund
2. VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series, 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 New York Tax Free Income Fund, Van Kampen American Capital
New Jersey Tax Free Income Fund, Van Kampen American Capital Florida Insured
Tax Free Income Fund, Van Kampen American Capital California Tax Free Income
Fund, Van Kampen American Capital Michigan Tax Free Income Fund, Van Kampen
American Capital Missouri Tax Free Income Fund and Van Kampen American
Capital Ohio Tax Free Income Fund
3. VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van Kampen
American Capital High Yield Fund, Van Kampen American Capital Short-Term
Global Income Fund and Van Kampen American Capital Strategic Income Fund
4. VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
Kampen American Capital Utility Fund, Van Kampen American Capital Value Fund,
Van Kampen American Capital Growth Fund, Van Kampen American Capital Great
American Companies Fund, Van Kampen American Capital Prospector Fund and Van
Kampen American Capital Aggressive Growth Fund
5. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
6. VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
7. VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
12. VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
13. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
14. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
15. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
16. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
17. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
18. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
19. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
20. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
<PAGE>
21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS
23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
MUNICIPALS
24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS
25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS
26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS
27. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
28. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
30. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
31. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
32. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
33. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
34. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
35. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
36. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
37. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
38. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
39. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
40. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
41. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
42. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts,
Explorer Institutional Active Core Fund and Explorer Institutional Limited
Duration Fund
<PAGE>
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 16th day of December, 1996 by and among Morgan
Stanley Asset Management Inc., a Delaware corporation ("MSAM"), ACESS
INVESTOR SERVICES, INC., a Delaware corporation ("ACCESS") and Morgan Stanley
Fund, Inc., a Maryland corporation.
RECITAL:
WHEREAS, the Morgan Stanley Fund, Inc. is registered as an open-end,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act") which has issued shares of several series
(collectively, the "Funds", and individually, a "Fund"); and
WHEREAS, MSAM is responsible for the provision of certain transfer
agent, fund accounting and administration services to the Funds pursuant to
the Agreement between MSAM and the Funds dated as of November 17, 1992, as
amended (the "MSAM Administration Agreement"); and
WHEREAS, MSAM wishes to retain ACCESS to provide sub-transfer agent
services with respect to the Funds, and ACCESS is willing to furnish such
services;
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,
MSAM hereby employs and appoints ACCESS as sub-transfer agent, dividend
disbursing agent and shareholder service agent for each of the Funds;
provided, however, that ACCESS shall not perform such duties with respect to
shareholders of Morgan Stanley Money Market Fund that are participants in
"PCS Program" (as used hereafter the terms "Funds" and "Fund" shall be deemed
to exclude such shareholders).
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective dated of this Agreement it will act as the
sub-transfer agent, dividend
<PAGE>
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 In order to assure compliance with section 1.03 and to implement
a cooperative effort to improve the quality of sub-transfer agency and
shareholder services received by each of the Funds and its 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 agree to provide a
reporting system designed to provide MSAM and the Board of Directors 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 MSAM and 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, MSAM agrees to pay ACCESS the fees provided in the fee schedules
agreed upon from time to time by MSAM and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each of
the Funds agree to reimburse ACCESS promptly for reasonable out-of-pocket
expenses or advances paid on the Fund's 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 to all shareholder accounts shall be advances to ACCESS by
the respective Fund three business days prior to the mailing date of such
materials.
2
<PAGE>
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS.
ACCESS represents and warrants to MSAM and 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 registered as a transfer agent under The Securities
Exchange Act of 1934.
3.03 It is duly qualified to carry on its business in the states of
Texas and Missouri.
3.04 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement.
3.05 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.06 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.
3.07 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 deemed, on a daily basis for each such Fund.
(b) The cumulative 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 pursuant to the
preceding sentence) upon any Fund is negative, ACCESS shall promptly make a
payment to
3
<PAGE>
such Fund (in cash or through use of a credit as described in paragraph (c)
below) of an equivalent amount. If on the last 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 and to a credit against
all future payments 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 from that Fund any payments made by ACCESS to such Fund
under paragraph (b) above during the year. 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 that would otherwise require a
payment to such Fund pursuant to paragraph (b) above.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF MSAM.
MSAM hereby represents and warrants on behalf or itself and the
Fund that:
4.01 MSAM is duly organized and in good standing under the laws of the
State of Delaware.
4.02 The Funds are duly organized and existing and in good standing
under the laws of the State of Maryland.
4.03 The Funds are series of an open-end, management investment
company registered under the Investment Company Act of 1940, as amended.
4.04 MSAM is empowered under applicable laws and regulations and by
its Articles of Incorporation and by-laws to enter into and perform this
Agreement.
4.05 All requisite proceedings have been taken by MSAM's and the
Funds' Boards to authorize MSAM to enter into and perform this Agreement.
4.06 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 Fund shares being offered for sale.
4
<PAGE>
ARTICLE 5. INDEMNIFICATION.
5.01 ACCESS shall not be responsible for and MSAM shall indemnify and
hold ACCESS harmless from and against any and all losses, damages, costs,
charges, reasonable counsel fees, payments, expenses and liabilities 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 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 for the benefit of a Fund 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 for the benefit of a Fund 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 representative or warranty of such Fund
hereunder.
5.02 ACCESS shall indemnify and hold MSAM and each of the Funds
harmless from and against any and all losses, damages, costs, charges,
reasonable counsel fees, payments, expenses and liability arising out of or
attributable to ACCESS' refusal or failure to comply with the terms of this
Agreement, or ACCESS' lack of good faith, 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
5
<PAGE>
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 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 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 for damages 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 ant 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. 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
comprise 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 MSAM AND ACCESS.
6.01 MSAM shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of the Funds' Board
authorizing the appointment of ACCESS and the execution and delivery of this
Agreement.
6
<PAGE>
(b) Certified copies of the Funds' Articles of Incorporation and
by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to MSAM and 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 perserved 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.
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.
7
<PAGE>
ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect until terminated by a party
with respect to that party for good and reasonable cause at any time by
giving written notice to the other party at least 120 days prior to the date
on which such termination is to be effective. Any unpaid fees or
reimbursable expenses payable to ACCESS shall be due on any such termination
date. ACCESS agrees to use its best effort to cooperate with each of the
Funds and the successor sub-transfer 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 MSAM, as the case may be; provided, however,
that no consent shall be required for any merger of any of the Fund 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.
8.03 ACCESS may, without further consent on the part of MSAM or 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 MSAM and 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 ACCESS may, without further consent on the part of MSAM or any of
the Funds, provide services to its affiliated companies. Such services may
be provided at cost.
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 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
<PAGE>
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.
MORGAN STANLEY ASSET
MANAGEMENT INC.
BY:
-------------------------
NAME:
-----------------------
ITS:
------------------------
ATTEST:
- ---------------------
MORGAN STANLEY FUND, INC.
BY:
-------------------------
NAME:
-----------------------
ITS:
------------------------
ATTEST:
- ---------------------
ACCESS INVESTOR SERVICE, INC.
BY:
-------------------------
NAME:
-----------------------
ITS:
------------------------
ATTEST:
- ---------------------
9
<PAGE>
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.
MORGAN STANLEY ASSET
MANAGEMENT INC.
BY:
-------------------------
NAME:
-----------------------
ITS:
------------------------
ATTEST:
- ---------------------
MORGAN STANLEY FUND, INC.
BY:
-------------------------
NAME:
-----------------------
ITS:
------------------------
ACCESS INVESTOR SERVICE, INC.
BY:
----------------------------
NAME: Paul R. Wolkenberg
--------------------------
ITS: President, Chief Executive Officer
and Director
-----------------------------------
ATTEST:
- ---------------------
10
<PAGE>
PRICING SCHEDULE
PRICE PER ACCOUNT PLUS OUT OF POCKETS
<TABLE>
<S> <C>
Van Kampen Global Equity Allocation Fund $23.38
Van Kampen Asian Growth Fund 23.38
Van Kampen American Value Fund 23.38
Van Kampen Latin American Fund 23.38
Van Kampen Emerging Markets Fund 23.38
Van Kampen Aggressive Equity Fund 23.38
Van Kampen U.S. Real Estate Fund 23.38
Van Kampen International Magnum Fund 23.38
Van Kampen Global Equity Fund 23.38
Van Kampen Equity Growth Fund 23.38
Van Kampen Emerging Markets Debt Fund 26.22
Van Kampen Global Fixed Income 26.22
Van Kampen Worldwide High Income 26.22
Van Kampen High Yield Fund 26.22
Morgan Stanley Money Market Fund 28.94
Morgan Stanley Government Obligations 28.94
Money Market Fund
Van Kampen Global Franchise Fund 23.38
</TABLE>
*Add $1.00 for Class B or Class C Surcharge
11
<PAGE>
Exhibit 10
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606-1285
September 18, 1998
Van Kampen Series Fund, Inc.
1221 Avenue of the Americas
New York, New York 10020
Re: Van Kampen Series Fund, Inc.
Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140)
-------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Van Kampen Series Fund, Inc. (the
"Company"), a Maryland corporation, on behalf of each portfolio of the
Company listed on Annex A hereto (the "Funds") in connection with the
preparation of Post-Effective Amendment No. 25 to the Company's Registration
Statement on Form N-1A (as amended, the "Registration Statement") to be filed
under the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), with the
Securities and Exchange Commission (the "Commission") on or about September
18, 1998. The Registration Statement relates to the registration under the
1933 Act and 1940 Act of an indefinite number of shares of common stock,
$0.001 par value per share, of the Company on behalf of the Funds (the
"Shares").
This opinion is delivered in accordance with the requirements of Item
24(b)(10) of Form N-1A under the 1933 Act and the 1940 Act.
<PAGE>
Van Kampen Series Fund, Inc.
September 18, 1998
Page 2
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Articles of
Amendment and Restatement of the Company's Charter dated September 20, 1995
as filed with the Secretary of State of the State of Maryland; (ii) the
Articles Supplementary of the Company's Charter dated May 2, 1996 as filed
with the Secretary of State of the State of Maryland; (iii) the Articles
Supplementary of the Company's Charter dated August 30, 1996 as filed with
the Secretary of State of the State of Maryland; (iv) the Articles of
Transfer of the Company dated September 24, 1996 as filed with the Secretary
of State of the State of Maryland; (v) the Articles Supplementary of the
Company's Charter dated December 12, 1996 as filed with the Secretary of
State of the State of Maryland; (vi) the Articles Supplementary of the
Company's Charter dated May 29, 1998 as filed with the Secretary of State of
the State of Maryland; (vii) the Articles Supplementary of the Company's
Charter dated June 29, 1998 as filed with the Secretary of State of the State
of Maryland; (viii) the Articles of Amendment to the Company's Charter dated
as of July 14, 1998 as filed with the Secretary of State of the State of
Maryland; (ix) the Articles Supplementary of the Company's Charter dated as
of July 10, 1998 as filed with the Secretary of State of the State of
Maryland (x) the By-Laws of the Company, as amended to date hereof; (xi) the
resolutions adopted by the Board of Directors of the Company relating to the
authorization, issuance and sale of the Shares, the filing of the
Registration Statement and any amendments or supplements thereto and related
matters; and (xii) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In such examination we have assumed the legal capacity of natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed, photostatic or other
copies and the authenticity of the originals of such latter documents. As to
any facts material to such opinion which were not independently established,
we have relied on statements or representations of officers and other
representatives of the Company or others.
Members of this firm are admitted to the practice of law in the State of
Illinois, and we do not express any opinion as to the laws of any
jurisdiction other than matters relating to Maryland General Corporation Law
and the federal laws of the United States of America to the extent referred
to specifically herein.
<PAGE>
Van Kampen Series Fund, Inc.
September 18, 1998
Page 3
Based upon and subject to the foregoing, we are of the opinion that the
issuance and sale of Shares by the Company on behalf of the Funds have been
validly authorized and, assuming certificates therefor have been duly
executed, countersigned, registered and delivered or the shareholders'
accounts have been duly credited and the Shares represented thereby have been
fully paid for, such Shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 10 to the Registration Statement. We also consent to the reference
to our firm under the heading "Legal Counsel" in the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom (Illinois)
<PAGE>
Van Kampen Series Fund, Inc.
September 18, 1998
Page 4
Annex A
Portfolios of The Van Kampen Series Fund, Inc.
Van Kampen Emerging Markets Debt Fund
Van Kampen Global Fixed Income Fund
Van Kampen High Yield & Total Return Fund
Van Kampen Worldwide High Income Fund
Van Kampen Aggressive Equity Fund
Van Kampen American Value Fund
Van Kampen Equity Growth Fund
Van Kampen Mid Cap Growth Fund
Van Kampen U.S. Real Estate Fund
Van Kampen Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Fund
Van Kampen Global Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund
Van Kampen Latin American Fund
Morgan Stanley Money Market Fund
Morgan Stanley TaxFree Money Market Fund
Morgan Stanley Government Obligations Money Market Fund
Van Kampen Growth and Income Fund II
Van Kampen European Equity Fund
Van Kampen Global Franchise Fund
<PAGE>
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. 25, Amendment No. 27,
to the registration statement on Form N-1A (the "Registration Statement") of
our report dated August 11, 1998, relating to the financial statements and
financial highlights of Van Kampen Series Fund Inc. (formerly known as
Morgan Stanley Funds, Inc.), which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectus and to the reference to us under
the heading "Independent Accountants" in such Statement of Additional
Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
September 28, 1998
------------------
<PAGE>
EXHIBIT 17(a)
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN FUNDS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
AUGUST 27, 1998
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Utility Fund
Van Kampen American Capital Value Fund
Van Kampen Great American Companies Fund
Van Kampen Growth Fund
Van Kampen Prospector Fund
Van Kampen Aggressive Growth Fund
Van Kampen Foreign Securities Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Limited Maturity Government Fund
Van Kampen Global Managed Assets Fund
Van Kampen Government Securities Fund
Van Kampen Growth and Income Fund
Van Kampen Harbor Fund
Van Kampen High Income Corporate Bond Fund
Van Kampen Life Investment Trust
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Comstock Portfolio
<PAGE>
Van Kampen Small Capitalization Fund
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax-Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen Aggressive Equity Fund
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Fund
Van Kampen Emerging Markets Debt Fund
Van Kampen Equity Growth Fund
Van Kampen Global Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Morgan Stanley Government Obligations Money Market Fund
Van Kampen Growth and Income Fund II
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund
Van Kampen Latin American Fund
Van Kampen MidCap Growth Fund
Morgan Stanley Money Market Fund
Morgan Stanley Tax-Free Money Market Fund
Van Kampen U.S. Real Estate Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Insured Municipals Income Trust.....................................Series 401
Arizona Insured Municipals Income Trust.............................Series 18
California Insured Municipals Income Trust..........................Series 174
Colorado Insured Municipals Income Trust............................Series 87
Connecticut Insured Municipals Income Trust.........................Series 37
Florida Insured Municipals Income Trust.............................Series 120
Georgia Insured Municipals Income Trust.............................Series 86
Kentucky Investors' Quality Tax-Exempt Trust........................Series 60
Maryland Investors' Quality Tax-Exempt Trust........................Series 86
Massachusetts Insured Municipals Income Trust.......................Series 35
Michigan Insured Municipals Income Trust............................Series 151
Minnesota Insured Municipals Income Trust...........................Series 62
Missouri Insured Municipals Income Trust............................Series 107
New Jersey Insured Municipals Income Trust..........................Series 123
New York Insured Municipals Income Trust............................Series 146
North Carolina Investors' Quality Tax-Exempt Trust..................Series 95
Ohio Insured Municipals Income Trust................................Series 110
Pennsylvania Insured Municipals Income Trust........................Series 237
South Carolina Investors' Quality Tax-Exempt Trust..................Series 86
Tennessee Insured Municipals Income Trust...........................Series 41
Virginia Investors' Quality Tax-Exempt Trust........................Series 81
Van Kampen American Capital Insured Income Trust....................Series 71
Internet Trust......................................................Series 11
Strategic Ten Trust, United States Portfolio........................August 1998 Series
Strategic Ten Trust, United States Portfolio........................August 1998
Traditional Series
Strategic Five Trust, United States Portfolio.......................August 1998 Series
Strategic Five Trust, United States Portfolio.......................August 1998
Traditional Series
EAFE Strategic 20 Trust.............................................August 1998 Series
EURO Strategic 20 Trust.............................................August 1998 Series
Strategic Picks Opportunity Trust...................................August 1998 Series
Strategic Fifteen Trust Global Portfolio............................July 1998 Series
Strategic Thirty Trust Global Portfolio.............................July 1998 Series
Great International Firms Trust.....................................Series 5
Blue Chip Opportunity and Treasury Trust............................Series 6
Blue Chip Opportunity Trust.........................................Series 4
Baby Boomer Opportunity Trust.......................................Series 4
Global Energy Trust.................................................Series 6
Brand Name Equity Trust.............................................Series 6
Edward Jones Select Growth Trust....................................July 1998 Series
Banking Trust.......................................................Series 3
Morgan Stanley High-Technology 35 Index Trust.......................Series 3
Health Care Trust...................................................Series 3
Telecommunications Trust............................................Series 3
Utility Trust.......................................................Series 3
Financial Services Trust............................................Series 1
Natcity Investments, Inc. Great American Equities Trust.............Series 1
First Albany Banking Growth Trust...................................Series 1
Gruntal Global Transport Trust......................................Series 1
</TABLE>
<PAGE>
EXHIBIT 17 (b)
Officers
Van Kampen Funds Inc.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman Houston, TX
Richard F. Powers, III Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman President Oakbrook Terrace, IL
Douglas B. Gehrman Executive Vice President Houston, TX
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
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Richard G. Gold Sr. Vice President Annapolis, MD
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
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
Colette M. Saucedo Sr. Vice President Houston, TX
Frederick Shepherd Sr. Vice President Houston, TX
Steven P. Sorenson Sr. Vice President Oakbrook Terrace, IL
Michael L. Stallard Sr. Vice President Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Edward C. Wood Sr. Vice President and Oakbrook Terrace, IL
Chief Operating Officer
Glenn M. Cackovic 1st Vice President Laguna Nigel, CA
Eric J. Hargens 1st Vice President Orlando, FL
David B. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Carl Mayfield 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
George J. Vogel 1st Vice President Oakbrook Terrace, IL
Patrick J. Woelfel 1st Vice President Oakbrook Terrace, IL
Robert J. Abreu Vice President New York, NY
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
Michael P. Boos Vice President Oakbrook Terrace, IL
James J. Boyne Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Robert C. Brooks Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Joseph N. Caggiano Vice President New York, NY
</TABLE>
<PAGE>
<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, Associate Oakbrook Terrace, IL
General Counsel & Asst. Secretary
Tracey M. DeLusant Vice President New York, NY
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Jonathan Eckard Vice President Tampa, FL
Huey P. Falgout, Jr. Vice President, Assistant Houston, TX
Secretary and Senior Attorney
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
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Daniel M. Hazard Vice President Huntington Beach, CA
Gregory Heffington Vice President Ft. Collins, CO
Susan J. Hill Vice President and Senior Attorney Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
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
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
Richard D. Kozlowski Vice President Atlanta, GA
Bradford N. Langs Vice President Oakbrook Terrace, IL
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
S. William Lehew III Vice President Charlotte, NC
Eric Levinson Vice President San Francisco, CA
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Kevin S. Marsh Vice President Bellevue, WA
Linda S. MacAyeal Vice President and Senior Attorney Oakbrook Terrace, IL
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
Maura A. McGrath Vice President New York, NY
John Mills Vice President Kenner, LA
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Peter Nicholas Vice President Beverly, MA
Michael D. Ossmen Vice President Oakbrook Terrace, IL
Todd W. Page Vice President Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
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
Michael W. Rohr Vice President Oakbrook Terrace, IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
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
Gwen L. Shaneyfelt Vice President Oakbrook Terrace, IL
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
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
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
Jeff Warland 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
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
David M. Wynn Vice President Phoenix, AZ
James R. Yount Vice President Mercer Island, WA
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Joan E. Blackwood Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Gregory T. Brunk Asst. Vice President Oakbrook Terrace, IL
Gina Costello Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Sarah K. Gieser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Houston, TX
Valri G. Hamilton Asst. Vice President Houston, TX
Laurie L. Jones Asst. Vice President Houston, TX
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Pamela D. Meyer Asst. Vice President Phoenix, AZ
Stuart R. Moehlman Asst. Vice President Houston, TX
Cathy Napoli Asst. Vice President Oakbrook Terrace, IL
Steven R. Norvid Asst. Vice President Oakbrook Terrace, IL
Vincent M. Pellegrini Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Vanessa M. Sanchez Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Bruce Saxon Asst. Vice President Oakbrook Terrace, IL
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Christina L. Schmieder Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Theresa M. Renn Officer Oakbrook Terrace, IL
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE>
DIRECTORS
VAN KAMPEN FUNDS INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- --------------------- ------------------------ ----------------------------
<S> <C> <C>
Don G. Powell Chairman 2800 Post Oak Blvd.
Houston, TX 77056
Richard F. Powers, III Chief Executive Officer One Parkview Plaza
Oakbrook Terrace, IL 60181
John H. Zimmerman President One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President, One Parkview Plaza
General Counsel Oakbrook Terrace, IL 60181
& Assistant Secretary
William R. Rybak Executive Vice President One Parkview Plaza
& Chief Financial Officer Oakbrook Terrace, IL 60181
</TABLE>
<PAGE>
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (individually, a "Trust") as indicated on
Schedule 1 attached hereto and incorporated by reference, each a Delaware
business trust except for the Van Kampen American Capital Pennsylvania Tax
Free Income Fund being a Pennsylvania business trust, and being officers and
directors of the Morgan Stanley Fund, Inc. (the "Corporation"), a Maryland
corporation, 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 or the Corporation with the
Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: April 24, 1998
Signature Title
--------- -----
/s/ Dennis J. McDonnell President and Trustee/Director
- --------------------------
Dennis J. McDonnell
/s/ Edward C. Wood III Vice President and Chief Financial Officer
- --------------------------
Edward C. Wood III
/s/ J. Miles Branagan Trustee/Director
- --------------------------
J. Miles Branagan
/s/ Richard M. DeMartini Trustee/Director
- --------------------------
Richard M. DeMartini
/s/ Linda Hutton Heagy Trustee/Director
- --------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee/Director
- --------------------------
R. Craig Kennedy
/s/ Jack E. Nelson Trustee/Director
- --------------------------
Jack E. Nelson
/s/ Don G. Powell Trustee/Director
- --------------------------
Don G. Powell
/s/ Phillip B. Rooney Trustee/Director
- --------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc.D. Trustee/Director
- --------------------------
Fernando Sisto, Sc.D.
/s/ Wayne W. Whalen Trustee/Director and Chairman
- --------------------------
Wayne W. Whalen
<PAGE>
SCHEDULE 1
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMREGING 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 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 U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS, INC.
<SERIES>
<NUMBER> 091
<NAME> VAN KAMPEN AGGRESSIVE EQUITY FUND (CLASS A)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 212,876
<INVESTMENTS-AT-VALUE> 218,999
<RECEIVABLES> 5,225
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 26
<TOTAL-ASSETS> 224,251
<PAYABLE-FOR-SECURITIES> 4,001
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 846
<TOTAL-LIABILITIES> 4,847
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,538
<SHARES-COMMON-STOCK> 3,200
<SHARES-COMMON-PRIOR> 2,003
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4)
<ACCUMULATED-NET-GAINS> 14,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,123
<NET-ASSETS> 219,404
<DIVIDEND-INCOME> 1,061
<INTEREST-INCOME> 350
<OTHER-INCOME> 0
<EXPENSES-NET> (2,508)
<NET-INVESTMENT-INCOME> (1,097)
<REALIZED-GAINS-CURRENT> 23,029
<APPREC-INCREASE-CURRENT> 2,644
<NET-CHANGE-FROM-OPS> 24,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,187)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,038
<NUMBER-OF-SHARES-REDEEMED> (1,340)
<SHARES-REINVESTED> 177
<NET-CHANGE-IN-ASSETS> 153,091
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,627
<OVERDISTRIB-NII-PRIOR> (390)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,787
<AVERAGE-NET-ASSETS> 167,783
<PER-SHARE-NAV-BEGIN> 16.98
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 5.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.93)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.01
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS, INC.
<SERIES>
<NUMBER> 092
<NAME> VAN KAMPEN AGGRESSIVE EQUITY FUND (CLASS B)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 212,876
<INVESTMENTS-AT-VALUE> 218,999
<RECEIVABLES> 5,225
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 26
<TOTAL-ASSETS> 224,251
<PAYABLE-FOR-SECURITIES> 4,001
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 846
<TOTAL-LIABILITIES> 4,847
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,538
<SHARES-COMMON-STOCK> 6,634
<SHARES-COMMON-PRIOR> 3,340
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4)
<ACCUMULATED-NET-GAINS> 14,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,123
<NET-ASSETS> 219,404
<DIVIDEND-INCOME> 1,061
<INTEREST-INCOME> 350
<OTHER-INCOME> 0
<EXPENSES-NET> (2,508)
<NET-INVESTMENT-INCOME> (1,097)
<REALIZED-GAINS-CURRENT> 23,029
<APPREC-INCREASE-CURRENT> 2,644
<NET-CHANGE-FROM-OPS> 24,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (5,696)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,818
<NUMBER-OF-SHARES-REDEEMED> (539)
<SHARES-REINVESTED> 314
<NET-CHANGE-IN-ASSETS> 153,091
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,627
<OVERDISTRIB-NII-PRIOR> (390)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,787
<AVERAGE-NET-ASSETS> 167,783
<PER-SHARE-NAV-BEGIN> 16.85
<PER-SHARE-NII> (0.21)
<PER-SHARE-GAIN-APPREC> 4.96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.93)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.67
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS INC.
<SERIES>
<NUMBER> 093
<NAME> VAN KAMPEN AGGRESIVE EQUITY FUND (CLASS C)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 212,876
<INVESTMENTS-AT-VALUE> 218,999
<RECEIVABLES> 5,225
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 26
<TOTAL-ASSETS> 224,251
<PAYABLE-FOR-SECURITIES> 4,001
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 846
<TOTAL-LIABILITIES> 4,847
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,538
<SHARES-COMMON-STOCK> 1,265
<SHARES-COMMON-PRIOR> 674
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4)
<ACCUMULATED-NET-GAINS> 14,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,123
<NET-ASSETS> 219,404
<DIVIDEND-INCOME> 1,061
<INTEREST-INCOME> 350
<OTHER-INCOME> 0
<EXPENSES-NET> (2,508)
<NET-INVESTMENT-INCOME> (1,097)
<REALIZED-GAINS-CURRENT> 23,029
<APPREC-INCREASE-CURRENT> 2,644
<NET-CHANGE-FROM-OPS> 24,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,157)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 982
<NUMBER-OF-SHARES-REDEEMED> (343)
<SHARES-REINVESTED> 67
<NET-CHANGE-IN-ASSETS> 153,091
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,627
<OVERDISTRIB-NII-PRIOR> (390)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,787
<AVERAGE-NET-ASSETS> 167,783
<PER-SHARE-NAV-BEGIN> 16.83
<PER-SHARE-NII> (0.21)
<PER-SHARE-GAIN-APPREC> 4.97
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.93)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.66
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS INC.
<SERIES>
<NUMBER> 051
<NAME> VAN KAMPEN AMERICAN VALUE FUND (CLASS A)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 598,231
<INVESTMENTS-AT-VALUE> 614,977
<RECEIVABLES> 16,312
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 631,293
<PAYABLE-FOR-SECURITIES> 11,702
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,254
<TOTAL-LIABILITIES> 13,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565,598
<SHARES-COMMON-STOCK> 10,315
<SHARES-COMMON-PRIOR> 5,502
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6)
<ACCUMULATED-NET-GAINS> 34,999
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,746
<NET-ASSETS> 617,337
<DIVIDEND-INCOME> 3,096
<INTEREST-INCOME> 1,345
<OTHER-INCOME> 0
<EXPENSES-NET> (6,232)
<NET-INVESTMENT-INCOME> (1,791)
<REALIZED-GAINS-CURRENT> 45,496
<APPREC-INCREASE-CURRENT> 4,044
<NET-CHANGE-FROM-OPS> 47,749
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (122)
<DISTRIBUTIONS-OF-GAINS> (5,303)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,937
<NUMBER-OF-SHARES-REDEEMED> (1,843)
<SHARES-REINVESTED> 269
<NET-CHANGE-IN-ASSETS> 535,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,140
<OVERDISTRIB-NII-PRIOR> (638)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,691
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,499
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<PER-SHARE-NAV-BEGIN> 17.59
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 4.84
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<PER-SHARE-NAV-END> 21.34
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS INC.
<SERIES>
<NUMBER> 052
<NAME> VAN KAMPEN AMERICAN VALUE FUND (CLASS B)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
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<SHARES-COMMON-PRIOR> 5,544
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6)
<ACCUMULATED-NET-GAINS> 34,999
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<ACCUM-APPREC-OR-DEPREC> 16,746
<NET-ASSETS> 617,337
<DIVIDEND-INCOME> 3,096
<INTEREST-INCOME> 1,345
<OTHER-INCOME> 0
<EXPENSES-NET> (6,232)
<NET-INVESTMENT-INCOME> (1,791)
<REALIZED-GAINS-CURRENT> 45,496
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<NET-CHANGE-FROM-OPS> 47,749
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<DISTRIBUTIONS-OF-INCOME> (29)
<DISTRIBUTIONS-OF-GAINS> (5,203)
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<NUMBER-OF-SHARES-SOLD> 12,495
<NUMBER-OF-SHARES-REDEEMED> (875)
<SHARES-REINVESTED> 239
<NET-CHANGE-IN-ASSETS> 535,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,140
<OVERDISTRIB-NII-PRIOR> (638)
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<GROSS-ADVISORY-FEES> 2,691
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<GROSS-EXPENSE> 6,499
<AVERAGE-NET-ASSETS> 453,316
<PER-SHARE-NAV-BEGIN> 17.59
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 4.83
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<PER-SHARE-DISTRIBUTIONS> (1.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.20
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS INC.
<SERIES>
<NUMBER> 053
<NAME> VAN KAMPEN AMERICAN VALUE FUND (CLASS C)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 598,231
<INVESTMENTS-AT-VALUE> 614,977
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<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 631,293
<PAYABLE-FOR-SECURITIES> 11,702
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<OTHER-ITEMS-LIABILITIES> 2,254
<TOTAL-LIABILITIES> 13,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565,598
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6)
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<NET-ASSETS> 617,337
<DIVIDEND-INCOME> 3,096
<INTEREST-INCOME> 1,345
<OTHER-INCOME> 0
<EXPENSES-NET> (6,232)
<NET-INVESTMENT-INCOME> (1,791)
<REALIZED-GAINS-CURRENT> 45,496
<APPREC-INCREASE-CURRENT> 4,044
<NET-CHANGE-FROM-OPS> 47,749
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25)
<DISTRIBUTIONS-OF-GAINS> (3,629)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,675
<NUMBER-OF-SHARES-REDEEMED> (671)
<SHARES-REINVESTED> 160
<NET-CHANGE-IN-ASSETS> 535,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,140
<OVERDISTRIB-NII-PRIOR> (638)
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,499
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<PER-SHARE-NAV-BEGIN> 17.59
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 4.83
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<RETURNS-OF-CAPITAL> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000891080
<NAME> VAN KAMPEN FUNDS, INC.
<SERIES>
<NUMBER> 031
<NAME> VAN KAMPEN ASIAN GROWTH FUND (CLASS A)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 127,293
<INVESTMENTS-AT-VALUE> 103,796
<RECEIVABLES> 935
<ASSETS-OTHER> 53
<OTHER-ITEMS-ASSETS> 26
<TOTAL-ASSETS> 104,810
<PAYABLE-FOR-SECURITIES> 955
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,778
<TOTAL-LIABILITIES> 2,733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253,650
<SHARES-COMMON-STOCK> 7,218
<SHARES-COMMON-PRIOR> 7,708
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,200)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (126,890)
<ACCUM-APPREC-OR-DEPREC> (23,483)
<NET-ASSETS> 102,077
<DIVIDEND-INCOME> 2,570
<INTEREST-INCOME> 519
<OTHER-INCOME> 0
<EXPENSES-NET> (4,468)
<NET-INVESTMENT-INCOME> (1,379)
<REALIZED-GAINS-CURRENT> (117,195)
<APPREC-INCREASE-CURRENT> (58,612)
<NET-CHANGE-FROM-OPS> (177,186)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (135)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,205
<NUMBER-OF-SHARES-REDEEMED> (12,556)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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